What The New Tax Deal Means For You

Besides the Bush tax cuts getting stretched another two years, the proposed new Obama-GOP tax deal has other goodies in the bag for you.

  • Unemployment benefits get extended for another 13 months.
  • The Alternative Minimum Tax (AMT) threshold got raised to $33,750, or $45,000 for married folks filing jointly.
  • Payroll tax for workers get cut from 6.2% to 4.2%
  • The Full Child Tax Credit will remain at $1,000 per child and won’t drop to $500 as planned.

In addition, if you thought your taxes rates were going to go up and so you planned on delaying deductions, contributions, or bonuses, it’s fine to take them before the end of the year like normal.

The new package has not yet gotten signed into law but when it does, it is likely to closely resemble the current proposal.

For more nitty gritty, check out “What the Tax Deal Means for You” on NYT Bucks Blog.

What the Tax Deal Means for You [NYT Bucks Blog]
Chart: What the Tax Deal Means for You [NYT]

With tax deal in sight, it’s time for year-end planning [Prism Money]


Edit Your Comment

  1. Mr. Fix-It says: "Canadian Bacon is best bacon!" says:

    o/` I wanna beee with you,
    And make believe with you,
    and live in harmony, harmony, oh love… o/`

  2. PanCake BuTT says:

    Do You Want To Hold My Dirty Hands ?

  3. SkokieGuy says:

    1). Survey’s show that the vast majority of the public had no clue that they had received a tax cut.
    2). The 10 year tax cut was (elder) Bush’s way of refunding the revenue surplus that Clinton handed Bush. The surplus is gone, so there’s no reason anyone should continue getting a cut / refund of funds that no longer exist.
    3). Most important is that while the entire country argues over if middle-American should continue to pay $400 or so less in taxes, most large corporations pay no US tax. We give TAX CREDITS to many companies including BP.

    All this tax debate is a smokescreen to deflect the true source of inadequate government revenue – little or no tariffs on imported goods, like most other countries impose on our goods.

    Tariffs, which was the main source of funding of the government for many years, would increase the cost of imported goods, reducing the benefit of offshore manufacturing and would generate US jobs.

    We also need to close business tax loopholes. The percentage of government revenue paid by corporations vs. the general public has drastically changed over the years. What about an AMT – Alternative Minimum Tax for corporations, just like us private citizens pay?

    • mbgrabbe says:

      Imposing tariffs would raise prices for American consumers, spark trade wars with our allies, and make international trade in general much more difficult. I don’t think the marginal increase in US jobs would be worth all that pain.

      • Tim says:

        Right, it’s sort of a trade off. We could have cheap goods, as long as they’re made elsewhere and imported. But then we lose our jobs making those goods. And once we lose our jobs making those goods, we need those cheap goods, and couldn’t afford those goods if they were made in the U.S., because they’d be more expensive.

        It’s a cycle, and I think it was started by corporations trying to cut their costs by offshoring. Now, we’re dependent on offshoring.

    • Bsamm09 says:

      So you want to pay more for all of our goods for jobs? Also, CORPORATIONS DO NOT PAY TAXES!!!! WE DO!!!!! They pass it on. And when they pass on dividends to us it’s taxed again.

    • TuxthePenguin says:

      1 – Considering most people get a tax refund each year, its not surprising that they didn’t realize there was a “tax cut” – really for most people they got their bigger refunds due to expanding/new deductions and credits more than they did with the lowering of the tax brackets. Trust me, if those things would have disappeared, they’d notice. And you could bet your money that those who would be hit the hardest (the rich) would be planning for it. Some already have… I feel bad for those clients, but one of them told me yesterday he just wrote it off as “uncertainty insurance”.
      2. By your logic, since there are no more surpluses and we have record deficits, we should raise taxes, right? But you only want to on the “rich”, am I still right? You do realize that 40+% of the American populace pays $0 income tax, right? Considering there are 300 million Americans, if we had a “minimum income tax” for $100, we’d raise $12 billion each year (assuming 40% pay no taxes). If we did away with the EITC (effectively a negative income tax rate) we’d raise even more than that. And, whether this is a feature or bug of the system, most of those people would not be able to avoid those higher taxes, unlike the rich who will hire lawyers and accountants (like me) to help them get around it. My easiest pitch is “would you rather pay Uncle Sam $10k or pay me $8k? If you pay me, you’re $2k ahead”. And nothing I do is illegal.
      3. Here’s a dirty little secret – only people pay taxes. Let that sit in. While a corporate structure might actually write the checks, those taxes are bourne by people – either the investors/owners who get a smaller distribution/dividend, the employees who take home a smaller paycheck, or the future employees that would have been hired if that money could have been reinvested into the company. That’s the only thing companies can do – reinvest and grow the business, pay employees, or distribute earnings. Technically, they also pay vendors, but then those vendors have those three options – eventually it gets to a person. We tax corporations not because they are evil or holders of wealth, but because its easier to tax Bank of America (paperwork, enforcement, etc) than it is to tax all of the owners. Well, it used to be. With modern electronics, its probably a wash now…

      Tariffs – I’m not going to bother responding to this except to say go look and see what tariffs did in the Great Depression.

      If I could have one action as President/Dictator, it’d be to abolish the income tax for everyone and implement a national sales tax instead. Tax consumption, not earnings. Not only does it allow for the tax-free savings of income (which would discourage borrowing), but it also taxes all that income that is never reported because it is either a) illegal (drug trade, etc) or b) below the reporting limits (such as $600 for 1099).

      • Verucalise (Est.February2008) says:

        I always wondered that myself. If my gross paycheck is $1,000, I should get almost my full almost subtract things like disability insurance and health insurance. Tax the things I need/want at a higher rate, instead of basing it on my income. Those people who make under-the-table cash now have pay higher taxes on everyday things. Am I understanding you correctly? If so, then I’ve believed in what you are saying for years.

        Not just that, but wouldn’t this also diminish or completely absolve the tax refunds people would receive during tax time? (such as ourselves) Then the government can finally tell people- you make a salary, you get the salary and we’ll take our cut thru sales taxes and such. You can choose to save and be frugal with your money or blow it and make Uncle Sam happy. Tax season will be year around instead of the painstaking January-April season where people freak out about owing. Those fancy schmancy families who make millions will have to pay a shitload more in sales taxes for all those luxuries they HAVE to have. Maybe we could create a tax sales bracket for basic necessities (food, toiletries, etc) with a lower sales tax then luxuries….

        Ok, Maybe I’m going a little too far but you get the jist.

      • DJSeanMac says:

        @Tux – you have a perspective problem. Perhaps you’d like to note why 40% of people don’t pay taxes; They’re employers don’t pay them enough of a wage to justify them paying taxes. So, because their employer is taking full advantage of a weakened labor market (or a low-skill workforce), the rest of us are asked to subsidize the tax they don’t pay. You should be mad at the employer, not the underpaid employee desperately trying to keep their head above water.

        The tax we pay on behalf of the 40% who don’t pay is…corporate welfare! Congratulations!

        And I’m seeing this sales tax nonsense pop up all over the place: poor people don’t buy off the internet or import goods from foreign lands. They buy locally because they’re essentially forced to. Rich people, on the other hand, use Amazon and eBay to get lower prices *and* avoid paying taxes on their purchases. They also spend money outside of the country. Do you see the imbalance here? Am I making sense?

        Now don’t get me wrong – I’m for something similar *if* we agree to tax essentials like food and medicine at around 2%, but tax your $450 jeans at 15% both in-store and online. Reconciling how to *ensure* we get that tax money from the internet and secondary market is a whole other boondoggle.

        • vision646 says:

          Lol, I think you are the one with the perspective problem. Not everyone’s work/ability is worth the same amount of money. People with rare and coveted skills are paid more than those with few or irrelevant skills (a person with a Ph.d probably deserves to be paid more than a person who’s recently finished high school). For the most part employers who don’t pay much aren’t providing unique/difficult products or services so they don’t need overly skilled employees (who would simply add additional cost to their products or services with little benefit). If you want to make more money its relatively simple, cultivate skills which are needed but hard to come by. If instead you choose to only have those skills which are commonly held by most people expect to be paid accordingly.

          One last thing if you simply raised all of their incomes they would be no better off than they are now, it would essentially create super inflation since the products or services they work to provide will be that much more expensive. This causes all other jobs in the system to pay their employees proportionally more thus leaving everybody with more money but very similar buying power.

          • LandruBek says:

            But that’s a strawman reply: he never said everyone should be paid the same wage.

            Also, you opine that if everyone’s income were increased, it wouldn’t help anyone, but I can hardly believe that is true for those who go hungry. For them even a modest income boost would help, perhaps an amount that a wealthy person would not notice.

    • np206100 says:

      Survey should be plural (surveys), not possessive (survey’s). What large US company makes a profit and pays no tax? Exxon paid $15 billion, Wal-Mart paid $7 billion, P&G paid $1 billion in 2009.

  4. Snarkster says:

    It’s not voted into law yet.

  5. mbgrabbe says:

    I don’t understand. I thought the Republicans won the last election because people wanted them to reign in spending and make real progress toward balancing our budget. Every single one of these additional items moves us in the opposite direction.

    • WiglyWorm must cease and decist says:

      Short memories.

    • dolemite says:

      Well, you see…when the rich get to keep their tax cuts, their cold hearts began to warm, and the ice melts around it. They decide it is finally time to hire people and pay them decent wages, and that they dont *really* need another 6 million this year, so perhaps they should stop working their salary people 55 hours a week. Then all the new well paid employees are happy, and they go out and spend money at McDonalds and Walmart and Sears, and the entire planet comes together in good cheer.

    • Bativac says:

      This puts more money in my pocket. I am very far from rich – solidly middle class – but I need the extra money. National debt is some vague thing – me needing to reduce my debt is very real.

      Balancing our budget should not involve taking more money from us. It should involve REDUCING SPENDING. This is what so-called tea partiers and most middle class conservatives want.

      My number one Christmas wish is that they completely end the Social Security program. I know, I know, a pipe dream, but still. Let me invest that money on my own. Let me be responsible for taking care of myself in my old age. There’s 2/3 of a trillion dollars right there — almost a quarter of the national budget.

      From there, somebody needs to review the Department of Defense budget with a fine-toothed comb and make some serious cuts. Then start looking at everything else.

      But anytime money is put back into my pocket it is 100% a good thing.

      • PunditGuy says:

        And if your retirement date would have been, say, at the end of 2008 — I guess you’d be eating cat food right about now.

        We had the system you want before Social Security was implemented, and the result was massive poverty among the elderly. We’ve solved that problem on the backs of current workers. I think we can swing the pendulum a little in the other direction without going all the way back to the way it was.

        • not-gonna-tell-ya says:

          Agreed. There should be something there. I read an article recently that suggested the system be changed from an unfunded / open ended tithe to a contribution type system similar to a 401k. That way you know what you are getting is proportional to what you put in. It would still be mandatory, but it wouldn’t be underfunded or stolen from over the years.

      • Oranges w/ Cheese says:

        Not really, it just keeps the money already there. It’s nothing new.

      • wimom says:

        But the government does not trust you with your money. Obama and his advisors, with their ivory tower educations, know better than you.

        If it helps, my Christmas wish is the same. Let’s find a star and wish on it.

    • cleek says:

      which is how you know the GOP is a passel of cowardly frauds

      • not-gonna-tell-ya says:

        I don’t think it was a spineless move, but more of a accomplish what matters now. Get the uncertainty out of the way now so they can focus on the spending when the new session starts. At least I hope..

      • Limewater says:

        The newly-elected folks aren’t in office yet.

    • tbiscuit360 says:

      It’s because it’s a deal. Usually when there is a deal, there is compromise in both directions. The GOP got the tax cuts extended and Obama got what he wanted. The GOP wouldn’t have gotten what they wanted if they didn’t give some stuff to Obama and Obama wouldn’t have gotten what he wanted if he hadn’t given anything to the GOP (aka the tax cut).

      • Awesome McAwesomeness says:

        Obama was the one who wanted the tax cuts extended for 98% of Americans. He simply didn’t want them extended to the richest 2% becasue taxes affect the standard of living more for the lower and middle classes than they do the wealthiest 2%. And, the middle class spends that extra money back into the economy, while the rich sock it away (hence the reason why they are rich.) The Republicans were ready to take the cuts away from everyone if they didn’t get what they wanted. They didn’t care about middle class tax cuts, they cared about the rich. Obama fought hard to keep those cuts. Wanting to tax the cut away from 2% doesn’t = everyone.

    • VeganPixels says:

      Deficit reduction will happen after they return from the holidays: privatization of Social Security and Medicare, abolish the Dept. of Education and OSHA, eliminate USDA nutrition assistance programs.

    • palfas says:

      Cause they really just want to line their own pockets, duh.

      Seriously, look at everything they do, it’s always to get more money for rich people and businesses. Keeping capital gains tax and estate tax low just helps them stay rich without ever working for it.

  6. dolemite says:

    I’m looking forward to my 2% “pay increase” since my employer is too greedy to provide one. Despite record breaking profits, they keep leaning on “the economy” excuse (as if we are stupid). I believe in the past 2+ years we’ve all gotten a 1% pay increase. Meanwhile just about every bill I have (from cable to cellphone to electricity to healthcare) has gone up at least 5-10% in that same time frame.

    Thats why I scoff whenever republicans state tax increases on the rich will hurt the small businesses. No, it’ll only hurt their chances on buying a 2nd beach house, because they sure aren’t hiring or providing increased pay/benefits.

    • Nigerian prince looking for business partner says:

      I’m also glad that this passed. We just got word that our health plan through work is going up 19%. We definitely need all the help we can get.

    • Cheap Sniveler: Sponsored by JustAnswer.comâ„¢ says:

      True Dat. They try to make us believe that the owners of businesses won’t hire if their personal taxes go up, but in reality increasing their PERSONAL taxes will have no effect, as their business is a seperate entity.

      • Tim says:

        How you ever noticed how the vast majority of initiatives aimed at helping small business also happen to help rich individuals, big businesses or both?

      • Bsamm09 says:

        Don’t know much about taxation or business do you? The vast majority of businesses are Sole Proprietors, Partnerships and S-Corps. I RARELY see C-corps. All of the those entities report their earnings on the TAXPAYERS 1040! Thats what the business earns, not what the owner actually takes home.

        • thefncrow says:

          Boohoo. Businesses are taxed on profits, not revenues, and if the business is making more than 250k a year, where their taxes would have gone up under the Congressional Democrats plan, I think they can afford to pay the additional 3% on profits above 250k and additional 4% on profits above $373k.

          Especially since the business’ profits are split between the owners according to how much of the business they own. A partnership with 2 equal owners won’t be impacted until they hit half a million in profit, a 3 person partnership with equal partners won’t be impacted until 750k, etc. Aside from a sole proprietorship, most of these structures require well over a quarter of a million dollars in yearly profit for them to even be effected under the plan the GOP is so desperate to block.

      • Back to waiting, but I did get a cute dragon ear cuff says:

        I am sorry, but in tight times where do you think the money comes from to pay these increased taxes? I am a small business owner. All my income comes from the business. X sales comes in the door. I have to pay out Y expenses for taxes (personal and corporate), salaries, inventory, etc.

        In good times sales > expenses. I make a profit. I pay higher taxes which I have no problem with since I am making a profit. In tight times, sales

        If you increase what I have to pay in taxes, that has to come from somewhere. That somewhere is the expenses above. There is only so far that I can stretch the gap between sales and expenses, and in this economy I have stretched it as far as I can. Unfortunately, Salaries is one of the largest parts of our expenses and when things need to be trimmed to cover other costs (increased taxes being one of them) salaries are one of many things on the block.

        • Awesome McAwesomeness says:

          Your taxes would not have been raised unless you are bringing in an income of over $250,000 per year. If you are bringing in that much in personal income from you business, then you are not barely scraping by or hurting for money. I have no pity for you if you are that wealthy.

  7. Nigerian prince looking for business partner says:

    It’s not part of this article but HSA-plans are changing for next year and essentially amounts to a tax increase for a lot of us.

    Can anyone explain the logic of no longer allowing HSA funds for OTC drugs, increased penalties (even for previously deposited funds), not increasing maximum contributions to keep up with medical inflation, and forcing them to cover certain types of care (treating them like a PPO)?

    • lawnmowerdeth says:

      Because it’s part of healthcare reform! Why do you hate reform?

      /sarcasm off. I’m screwed by the new HSA rules as well.

      • Nigerian prince looking for business partner says:

        I’m just amazed that it hasn’t gotten more press.

        I think what really irks me the most is the mandate that all plans must cover a laundry list of preventative care. It’s great in theory but premiums are just going to become more inline with PPO premiums on account of these changes.

        The increased penalties are just as bad. Drastic changes were made to these plans, which retroactively apply to previously deposited money. If Bank of America did something like this, people would be livid but it’s fine since it’s the government.

    • nova3930 says:

      The logic is, they fully intend to kill your HSA/FSA along with your private insurance. That’s the logic and ultimate goal….

    • Not Given says:

      What I read is that OTC items like bandages, condoms, crutches, eyeglasses are still reimbursable with a receipt like before. For OTC drugs, including antibiotic creams, anti-itch creams, sleep aids, cough medicine, nasal sprays, heartburn remedies, spermicides, etc. you need to send a copy of a prescription from the doctor with the receipt. The doctor can write the prescription to be refillable and can prescribe the dose and how many times a day to take it or can write it ‘take as needed’ or prn. I think the prescription expires at the end of the year. You can fill it at a pharmacy or if you can get a receipt that qualifies you can buy it at another store.
      OTC insulin still requires no prescription. (I’m pretty sure that has to do with the way the original patent was written in the 20s when it was first refined. The inventors wanted it to be available to anyone who needed it.)
      Other items may be reimbursable with a letter of medical necessity from your doctor that includes the condition being treated, the expected benefit and a time limit. An example would be if you needed to have the doorway into your bathroom widened to accommodate a wheelchair or your doctor wanted you to use particular machines at a gym for a specified length of time, you could get the membership reimbursed (as long as you weren’t already a member of the gym.)

      • Nigerian prince looking for business partner says:

        So in order to use my HSA for those items in 2011, it will be necessary to spend $100 for a doctor’s appointment to get a prescription?

        • wimom says:

          Yep and waste tons of paper and time–your’s, mine, and that of our physicians. But it all makes sense because we simple folk can’t be trusted to spend our money on health care wisely. Thank you daddy Obama.

    • hansolo247 says:

      Don’t forget the 7.5% to 10% threshold before you can deduct health expenses.

      Oh, and the taxes on insurance. People with work-provided health care plans will likely see a VERY large increase in taxes. But that’s not until Obama’s second term. Health insurance also remains non-deductible.

      All health care expenses should be deductible…and not even itemized.

  8. gedster314 says:

    So America, do you feel like you got played? The politicians waved the flag against abortion, once in office nothing happened. They waved the flag against gay marriage and again nothing happened. This election they waved the flag over the deficit.

    $20 Trillion by 2012!!! Will someone hurry up and foreclose already?

  9. Loias supports harsher punishments against corporations says:

    “Payroll tax for workers get cut from 6.2% to 4.2%”

    You weren’t specific Ben, and it’s important that you are. It’s a reduction to the Social Security Tax. That means a system which is already losing money will have the employee’s portion of funding reduced by 32%, while making NO decision on how to reduce the costs associated with this program.

    I’m an Obama supporter, but this aspect was a complete failure on his part. I look at that and cannot even begin to fathom how he thought this was justified. All I see it as is pandering to a very vocal right that is as onry as a jackass.

    • dolemite says:

      Aren’t they also raising retirement age to 69? That probably offsets the decrease in SS contributions for the 2 years.

      • formergc says:

        No they’re not. That was a proposal from the the deficit commission. It won’t even be voted on until someone drafts a bill with it in it.

    • TuxthePenguin says:

      Technically, it isn’t a tax. That’s your payment into the Social Security system – an investment. People have argued for years that it really isn’t a tax.

      What this does is start to tear the cover off of that scam. Social Security is just another entitlement – it does not have a trust fund. Well, technically it does, but they are filled with IOUs from the General Revenue fund… which is currently borrowing to pay its own expenses.

      If the government had to consolidate its financials across all features (it technically does not) the Trust fund would disappear – because there would be an offsetting liability by its related entity.

      • Erik Hughes says:

        Well, it comes straight out of my paycheck and goes to the government, I have no control over how it’s spent, and it goes directly into the general fund. That sounds a whole lot like a tax.

        • Evil_Otto would rather pay taxes than make someone else rich says:

          WE are the government. That’s what everyone forgets.

      • Loias supports harsher punishments against corporations says:

        Do you really need to bring an entitlement argument in right now? The fact is it’s a part of our system. People rely on it. Until that changes, it’s necessary. So don’t change the subject. But this will aide in ruining the retirement years for a majority of Americans.

        • Awesome McAwesomeness says:

          We have to find a way to phase it out without taking away benefits from people who have already paid into it. If they started saying that everyone who was 18 and born after xyz date, started on this new xyz direct investment system, while everyone after that date collects social, they could theoretically get rid of the existing system, but without new workers paying into the system there is no money for the people collecting. So, it’s a vicious cycle.

          • Loias supports harsher punishments against corporations says:

            And yet, that is not being proposed in this compromise. When it comes up, let’s discuss! But for now it has nothing to do with this.

      • George4478 says:

        It’s taken out of my check by the government at the point of a gun.

        I have no say in how much I “invest”.

        I have no say in how my investment is managed, where it’s invested, etc.

        The amount I pay has no relation to the amount I get back. I can get far more than I paid in, far less than I paid, anything at all. The amount I get back is based more on how many other people are “investing” at the time of my retirement.

        If I die too soon, I and my heirs, get nothing.

        Name one other investment like that…..

        • Nigerian prince looking for business partner says:

          It’s definitely awful from an investment perspective, especially for those under the age of 40, but it does provide a very basic level of insurance. If you were to go blind at the age of 20, SSI would keep you from having to beg for handouts on the street.

          However, I do wish there was a way to opt out of the system. I’d much rather handle my own investments and disability insurance.

          • Jevia says:

            There are ways to opt out, but they’re few and they have repercussions. My mother was a teacher in CA and part of the CTA (California Teachers Assoc.) which was exempt from SS. The downside was that when my dad (who paid into SS) died, she, being a non SS person, could not even get his benefits.

    • Not Given says:

      That 2% is going straight into my IRA

  10. kathygnome says:

    Apparently if you’re very poor (under 20k individual/40k family) and were eligible for the making work pay tax credit, the plan actually raises your taxes.

    • thefncrow says:

      Yep. Making Work Pay was a straight $400/$800 tax credit(depending on single or married) no matter how much money you made. The payroll tax reduction means that single filers making under $20,000 a year or married filers making under $40,000 will see less than the $400/$800 they got under Making Work Pay.

      • Kimaroo - 100% Pure Natural Kitteh says:

        Aww crap. I really liked that last year : / My tax situation is complicated due to 1099 income, and that 800 was a real life saver when it was time to see what we owed. : /

  11. marc6065 says:

    It is time to ditch all this income tax bs and and just pass a national sales tax! That way everyone pays their fair share on what they purchase. No more tax code, no more IRS, no more people cheating on their taxes, no more political bs every year about taxes, no more campaign promises to be broken, a way to finally get rid of the deficit.

    • Tim says:

      That’s an extremely regressive taxing system, because people with lower incomes consume a larger chunk of their income than those with higher incomes.

      • TuxthePenguin says:

        Technically, no, it is not regressive. A regressive tax system would be one that taxes the poorer a greater percentage than the richer. Explicitly. IE, someone who makes under 50k pays 25%, someone who makes 50k pays 20%. That’s regressive.

        A national sales tax is neither regressive or progressive – you pay only when you consume. And everyone pays the same rate. What you are arguing is what Buffet (misleadingly) argues – he pays a lower tax rate on his income. Using his logic, he’s right. But technically, he’s wrong. His actual income (ie, W2 or 1099) is taxed the same based on the level its at (using the tax brackets). Its no surprise, though, he makes sure most of it comes through as anything BUT ordinary income.

        See, here’s the beauty of a national sales tax – it allows the poor to save money tax free. It encourages thift. Things that you really need to get our of being “poor”.

        • Loias supports harsher punishments against corporations says:

          You’re the expert, the one that said “Pay the government 10k or pay me 8k” So I think then the system is in fact regressive. The rich seem to find ways to avoid taxes, while the poor do not.

          • George4478 says:

            Considering 40% of this country pays zero (or less with the EIC) in income tax, I think the poor do a magnificent job of not paying taxes.

            • NeverLetMeDown says:

              People who parrot that 40% number are either (a) ignorant or (b) being intentionally deceptive. That % doesn’t include payroll taxes.

          • TuxthePenguin says:

            I’m not going to bother to reply to another regressive argument except to say this.

            Compare the tax paid on ordinary income for my client to the tax paid on ordinary income to your choice of a “poor” person.

            Then compare the tax paid on dividends for my clients to the tax paid on dividends to your choice of that same “poor” person.

            Then with tax-free income. Then with distributions. Then with interest. You’ll see that in all cases, the tax system is progressive. Only when we lump it together does it get the illusion of being regressive.

        • Senator says:

          It (Flat Tax) also curbs spending among the middle and lower middle classes and the poor, of course. We all know what happens when people start saving and stop spending….

        • thefncrow says:

          No, he’s right. A national sales tax is an entirely regressive tax.

          The poor spend consume their entire yearly income, so they pay tax on 100% of their yearly income. The middle class may have some room to save some money, so they’re paying taxes on probably 80-95% of their yearly income. The rich spend very little of their yearly income, so they would pay taxes on 20-40% of their yearly income.

          The tax burden in this plan rests solely on the backs of the poor, while giving a massive gift to the rich by making most all of their income tax free.

          The definition of a regressive tax is a lot wider than the one possible definition you lay out. A classic example of a regressive tax that “looks” flat is the tax on cigarettes. Cigarette taxes are nominally flat but are borne almost entirely by the poor, and a study by the Tax Foundation found that the difference in the effective rate on the cigarette tax between the top and bottom quintiles was a difference of 583%. In other words, the poor are paying just shy of six times what the rich are paying in cigarette taxes.

          • TuxthePenguin says:

            No, the tax is not regressive. The effect could be said to be regressive.

            Lets have a simple thought problem.

            Mr. Rich walks into a store with Mr. Poor. Both want to buy a stick of gum. Under a sale tax, is there a difference in the amount of tax they pay? No.

            Mr. Rich walks into the bank with Mr. Poor. Both wish to deposit $1 into their savings accounts. If there is a national sales tax, but not a national income tax, is there any difference in the tax on that dollar being saved? No.

            Only when you start grossing it up to the annual level do you start to see the illusion of a regressive tax. But it is not regressive because it treats the economic actions of both Mr. Rich and Mr. Poor exactly the same. No matter their decision, the tax effect is identical. Your argument is that it takes $100 a year to live at some pre-determined level, including the sales tax. Mr. Rich earns $1,000 and Mr. Poor earns $100. The only way to make this system look regressive is for Mr. Rich to sacrifice consumption until a future date – ie, not live at some higher level (“live it up”). That’s it. He cannot change the earnings from ordinary income to dividends to lower the tax he paid for his stick of gum.

            So what you’re saying is that the incentive to save money is a bad thing?

            • PunditGuy says:

              Mr. Poor has paid 50 cents in tax on his pack of gum, which is 4 thousandths of a percent of his income. Mr. Rich has paid 50 cents in tax on his pack of gum, which if 4 millionths of a percent of his income.

              • TuxthePenguin says:

                So your goal is not equal treatment, but equal results, right?

                • PunditGuy says:

                  I’m actually for a flat income tax, so I’ll all in for equal treatment. I was pointing out how the sales tax is regressive.

                  • thefncrow says:

                    Actually, a nominally flat income tax is also regressive, thanks to the decreasing marginal utility of money. You need progressive measures like exemptions, deductions, or marginal tax brackets to even bring the tax system back to where the burden is borne equally by the rich and poor.

    • fortymegafonzies says:

      No more IRS? Are we just going to assume that businesses send in the proper amount of tax out of the goodness of their hearts?

      • TuxthePenguin says:

        Because businesses would not longer be taxed on their earnings, but rather on their consumption… just like normal people…

        • Nigerian prince looking for business partner says:

          Wouldn’t there still be some government agency that makes sure businesses are actually reporting the appropriate figures, or would it all be honor system?

          I guess one perk of such a system would be its benefit to the environment. I imagine a 30% sales tax would be quite a damper on new car, appliances, and electronic sales. It would definitely make repairing way cheaper than buying new.

    • Me - now with more humidity says:

      Way too regressive. A national sales tax would unfairly punish the poor and middle class. A flat tax with no allowed deductions makes more sense.

    • Erik Hughes says:

      As long as this applies to the buying of stocks and bonds, I’m all for it.

  12. Scamazon says:

    CAUTION: OBJECTS IN MIRROR ARE CLOSER THAN THEY APPEAR! Don’t you have to be employed to partake in these benefits? There are a tidal wave of unemployed people that have fallen off the ranks and don’t count or qualify for any of these bobbles, uh I mean “perks”.

    The trickle down theory is B.S. and even Warren Buffet has come out in favor of letting the tax breaks expire for the rich. If we fail to learn from past history we are doomed to repeat it…

    • TuxthePenguin says:

      Here’s an easy way to tell if someone is being honest – if they do what they say. I’d love to be Warren Buffet’s CPA, because I imagine he employs an army of them to do all the taxes for his personal and business holdings. Why doesn’t he just fire them and send the government a check calculated as his total income thruogh the year, from all sources, times 35%? Heck, the treasury will cut that check. He doesn’t need to tax the standard or itemized deductions or the personal exemptions.

      Same thing with people telling me to “reduce by carbon footprint” – lead by example, people.

  13. csciguy says:

    Can someone answer two things for me?

    1. If the idea behind these “tax cuts” is to create jobs, then why don’t we have more jobs being created now? Currently the Bush tax cuts are in place. They will get extended under this legislation. What makes signing this extension any different than what we already have in place now? Everyone is receiving the benefits of reduced taxes currently. Why aren’t there more jobs? I find it hard to believe that somehow jobs are magically going to appear from this.

    2. How on earth can anyone support the idea of decreasing social security taxes? The system is running out of money. Decreasing the amount that is brought in to that system shortens the amount of time until it’s totally upside down. How is this a good deal for anyone? You get a temporary boost, but at what cost?

    • TuxthePenguin says:

      1. Its called uncertainty. There are many, many things that go into deciding whether to do something with your business, the one of the biggest is the tax code. Here’s a simple example – assuming you are at the 35% tax rate, if you pay your mortgage on the 1st of every month, if you accelerated that payment (and actually got credit for the interest on 12/31), you would get 35% of that interest paid back on April 15th – 4 or 5 months (assuming it takes a bit to process). Even if tax rates stayed the same, if you paid on the 1st, it’d take 16 or 17 months to get that same credit.

      Now to reverse it – this year you have a 30% tax rate, next year you’ll have a 40% tax rate. For a $1000 check that would normally be earned on the 1st, would you rather receive it (and pay taxes on it) on 12/31 or 1/1? Even with the time-value of money, you’d rather have it on 12/31 (the extra year it would sit in your bank doesn’t make up for the higher rate). So what many people were doing (my practice did a lot of this) was try to shift income into this year at all possible – slow pay vendors, negotiate debts, etc.

      2. Social Security is going to go broke. I actually like we’re accelerating it, so we will have to deal with it sooner rather than just continuing to kick it down the road.

      • Me - now with more humidity says:

        The uncertainty argument is a strawman. The tax rate has been “certain” for the 10 years of the Bush tax cuts. Yet unemployment is nearly 10 percent. They haven’t been hiring. If the cuts are repealed, they’ll have certainty — and still won’t hire.

        • TuxthePenguin says:

          No, uncertainty is about the future. Tell me this… if you were a business owner and in 2008, a party was elected which had been decrying the tax rates that you’ve grown accustomed to, wouldn’t you assume that, since they have full control of the government, those would tax rates would be raised again? And the fact for two years you sat there and waited and waited… that’s uncertainty.

          And you’re also confusing why the unemployment rate went up with the uncertainty over tax rates. Did the latter have some play in it? Probably. But there were plenty of other things that drove people and employers to lay off others – namely the recession. Unemployment and recessions go hand and hand, swapping out causation.

          • Loias supports harsher punishments against corporations says:

            If these businesses can’t handle a little more in taxes, then they should pack up and go. But really, it’s been an excuse to not act and an unwillingness to put forth effort to solve problems. A selfish attitude that precludes caring about anyone but themselves.

            But hey, I guess that’s business.

            • TuxthePenguin says:

              “If these businesses can’t handle a little more in taxes, then they should pack up and go” Why don’t you turn that question around? “If you can’t handle a little more in taxes…” means “If you can’t handle a cut in pay” because that’s what a tax hike means – less income at the end of the day. How about you take 6% pay cut and not complain (someone making enough to be in the 35% tax bracket would have had paid at 39% – that’s a 4% nominal increase, but 6.1% reduction in income (assume -.4/.65).

              Remember, businesses don’t pay taxes. Only human beings do.

    • segfault, registered cat offender says:

      The Social Security tax is a farce–it’s an entitlement benefit and should be paid for out of our nation’s general coffers like everything else. If the government wants to tax gross income, fine, but don’t call it a Social Security tax when you’re just going to borrow from the SS trust fund to pay for something else.

  14. Bsamm09 says:

    The only businesses that “pay” taxes are C-corps and they are very rare. The VAST majority of businesses are Sole Prop, Partnerships, and S-corps. These are pass-through entities that report on the owners 1040 which they pay tax on.

    • fatediesel says:

      Yes, far too many people don’t understand this. They hear stats like 90% of corporations don’t pay taxes and take that to mean no taxes are paid on the businesses behalf, which is completely wrong. My company (an S-corp) doesn’t pay income taxes, but the shareholders do.

  15. progrocktv says:

    I thought these Bush tax breaks were a bad idea to begin with and are a bad idea now, they need to expire. What people don’t realize is it’s all fine and dandy now we’re getting money back, but we’re going to have to pay the shortfall this creates somehow. It goes with the logic many people who get credit cards assume, if you get a credit card with let’s say a $5,000 limit many people automatically think they have an extra $5,000 in their pockets without initially realizing it has to be paid back, WITH INTEREST.

  16. areaman says:

    •The Alternative Minimum Tax (AMT) threshold got raised to $33,750, or $45,000 for married folks filing jointly.

    This is a tax break for people who own somewhere between $750K to $1MM in muni/state/triple tax free bonds.

    From the way some people post on here there seems to be a lot of people who are in this position but I thought I’d explain for the few that aren’t (me included).

    • Kman says:

      What? The AMT doesn’t have anything to do with bonds.

      It is a minimum tax that is assessed in case your exemptions are too high. Although, since the caps haven’t been adjust for inflation, middle class individuals are now subject to the tax.

      For example, last year I had a child, but roughly the same income as the year before. I was subject to AMT, which effectively wiped out the exemption for having a child.

      • areaman says:

        …AMT was originally designed to force 155 people with income exceeding $200,000 ($1.17 million in 2005 dollars) whom had paid no income taxes in 1967 due to deductions and tax credits.


        A lot of these people get their tax free income from buying muni bonds. How does one get $200K+ in tax free income? Buy about $7 million dollars of muni bonds.

        From what you’re saying it sounds like you got caught in the “didn’t adjust for inflation” trap. And/Or you could own a mountain of muni bonds.

  17. Nakko says:

    Does this in any way change or extend the federal estate tax?

    • Aquaria says:

      From what I understand, the Estate Tax goes back into effect, only at 35% of anything over $5 million instead of the previous 45% of anything over $3.5 million (I think) in 2009. If you had a rich relative croak in 2010, you are golden, though – no estate tax.

  18. MedicallyNeedy says:

    “Trickle up Misery” for at least 2 years. As I continue to get screwed by corporations, I don’t know that I will be able to hold my anger towards those who are “just doing their jobs”. I hope I don’t lay into them (verbally of course). If I do, I’ll apologize afterwords and tell them, “Pass up the Grief”.

  19. csciguy says:

    But how exactly does what you describe create jobs? It does nothing but shift money around. The extension of the Bush tax cuts has been touted as to have the ability to create jobs. I don’t see that happening, uncertainty or not.

    • TuxthePenguin says:

      Lets start off by using a simple, albeit extreme, example.

      Say Mr. Big, Evil Corporate Overlord, is used to his $1mm year in income after taxes. Sure, he saves some of that, but he likes to brag that his after-tax income is seven-figures. He’s all into his ego, so he’s going to protect that at all costs. Right now his tax rate is 35%, so to earn that million dollars he has to earn just over $1.53 million before taxes (I’m keeping this simple – $1mm / .65). Now, the tax rate is raised to 40%. For him to keep his $1mm after-tax income, he needs to make $1.66mm. He needs to find another $130k in expenses to cut from his corporation to bring his income up high enough (ignoring multiple taxation levels… that just makes this bigger). So he cancels the holiday party next year (saves $10k), he fires two salesmen (saves another $100k) and then proceeds to keep the AC at unreasonable levels, burning/freezing out the remaining employees to make up the rest of the difference.

      Mr. Big now has his $1mm, but to do it he cut down on the enjoyment of his employees (freezing/burning and no holiday party) and two people lost their job. All because tax rates went up.

      Yes, its an extreme, but for many SP and partners in partnerships, things like this happen, not because they want bragging rights, but because your personal expenses have this nasty habit to expand with the level of your income.

      • lettucefactory says:

        You spent a lot of time answering a question that wasn’t asked. Creating jobs is not the same thing as not firing the people you already have.

        Mr. Big, Evil Corporate Overlord is not going to exapnd his business if his income falls, fair enough. But by this logic he is also not going to expand his business if his income remains flat.

        Businesses need more customers if they are going to expand and hire more workers. Overlords don’t hire out of the goodness of their hearts. Unless all his clients are from the Overlord family. But even then, if their income is remaining flat, why would even they buy more products or services from Mr. Big?

        • TuxthePenguin says:

          No, I just answsered his question in the backwards way like the government does.

          Not raising taxes is going to cost us… whatever the new big, scary number it is that everyone was totting.

          So by not raising taxes, Mr. Big won’t fire people, therefore we created jobs! Its the same logic of “saved or created”…

  20. StevePierce says:

    And what does this ‘package’ add to the deficit?

  21. Kestris says:

    I’m hoping that, if nothing else, the Unemployment Benefits extention goes through.

    My mom loses her benefits this month otherwise. Since the company she worked for for nearly 20+ years went under last year, she’s been out of work, but looking for part time.

    Dad’s already retired, but with his health issues, he wouldn’t be hired by anyone anyway.

  22. Kestris says:

    I’m hoping that, if nothing else, the Unemployment Benefits extention goes through.

    My mom loses her benefits this month otherwise. Since the company she worked for for nearly 20+ years went under last year, she’s been out of work, but looking for part time.

    Dad’s already retired, but with his health issues, he wouldn’t be hired by anyone anyway.

  23. markincleveland says:

    My favorite part of the legislation is the part that Harry Reid introduced to pay back his campaign supporters; the legalization of online poker. It has so much to do with not raising taxes and extending unemployment benefits. Just because two of Senator Reid’s top four contributors were casinos is no reason there is a pay to play system in Washington, is there?

  24. kenskreations says:

    What? This “Payroll tax” reduction is from Social Security? For a year? We already spend all this money and just give IOU’s out (without interest). So now there will be less money for the seniors (who haven’t gotten a raise in two years) later on. Just WHERE is this money coming from? China? And all the young people out there (and here) are going to be paying for all this for the rest of their lives – and their children will also. We are living in debt forever. Remember the “cut spending” that the Repub’s got voted in for? Think of this in two years. Then we can do “Change you can believe in” but not by the Dems or Repub’s.

  25. banmojo says:

    1. The current tax code is ridiculous and cumbersome. Simplification could be viably done through a variety of ways.

    2. Why does no one want to cut down on the federal budget? There are countless programs and entities that should be made to work with less, or done away with entirely. Social welfare does not work – we have countless BIG examples of this and yet we do nothing to change our current self defeating policies because, *gasp* it’s a VOTING/POLITICIAN issue.

    You want to make those who work hard and prosper pay for those who are lazy, shiftless, cunning, criminal, and low class.

    I bet that last sentence made the libbies cringe. I’m just stating facts here. There will always be haves and have nots. The ORIGINAL U.S. culture/politics encouraged those who worked hard AND encouraged those who were poor to get skillz and get jobz (or not eat).

    That’s just how human nature works. We ALL know this intuitively if we will be honest with ourselves.

    It may seem cut throat but IT’S HUMAN NATURE AND THAT WILL NOT CHANGE.

    This current system is not self sustaining, and there will be no long time fix as long as politics continue as they have. We ARE headed towards the total collapse of our once great country, and when that occurs the whole world will turn to anarchy and we will ALL suffer enormously for our mistakes, for our refusal to take the (difficult) necessary steps to prevent this future.