Taxing Questions

I got the following from a friend of mine. This friend is an engineer - he works for a firm based in Texas and his combined taxable income falls under the $150,000 thresh hold that Senator Biden mentioned on Monday. Here is what my friend had to say.

Obama says he is going to cut taxes for the middle class. The definition of the middle class varies for $250,000/yr to $150,000/yr, depending on the day of the week and who is talking.

Obama is not talking about the expiration of the Bush tax cuts in 2010. Regrettably, neither is McCain. That leaves me to do it for him.

Obama has bitterly criticized the "Bush tax cut for the rich". He has made his intentions clear, implicitly, if not explicitly, that he intends to allow the tax cuts to expire. When that happens, your taxes are going up.

I decided to see how much my taxes would go up. I manually calculated them to be over $4,000 per year. I do not make $250,000/yr. My combined family income is less than $250,000/yr.

I made an Excel spreadsheet to make it easy for everyone to calculate their taxes both with and without the Bush tax cut. Open the attached spreadsheet, fill in your taxable income for the year 2007 and select your filing status. You may be shocked by the results. This spreadsheet is only valid for 2007.

Now first I have to issue a minor correction to my friend. Both candidates have statements on the record about the Bush tax cuts. Senator McCain would renew the Bush tax cuts were Senator Obama says he will allow them to expire on "the rich" but his definition of "rich" has been awfully fluid this week.

Using my friends calculator, I decided I would play around with a few numbers. A married couple with a joint income of go from having a tax liability of $17,847 (before deductions) in 2007 to a tax liability of $19, 719 - an increase of $1,871 just by letting the Bush tax cuts "for the rich" expire. A married couple with a combined income of $42,000.00 will see a $782.00 increase and a married couple making $65,000.00 will see an increase of $821.00. But wait, you say - the tax calculator on the Obama website says that these people pay less taxes! True it does say that, but the Politifact website tells you why you should not take what either candidate has on their websites as set in stone fact!

That said, the spreadsheet that he created is simply for calculating your tax liability before deductions. It does not take into account any of the Bush tax cut deductions that would also expire with the tax cuts. For example, the per child tax credit would drop back down to $1000 per child from the $2500 it is now. That is a significant tax "increase" for the lower and middle class tax payer that is hurting today.

One of the "highlights" of the Obama plan are a series of "refunds" that are designed to go out to those who qualify. These refunds come AFTER you pay your increased taxes. So if your taxes go up $821.00 and you get a $1000 "refund" (based on a joint income of $65,000 a year)
your tax "cut" from the Obama Administration will be less than $200.00. With the cost of living in most states being what it is, that is not going to be a whole lot of help to many "middle class" families now is it. A better idea (for tax parity) would be a flat or "fair" tax system where EVERYONE pays the same percentage of their income with no deductions. However, that will never happen because the same special interests (and that includes the Democrat leadership in Congress) that brought us the mortgage meltdown will never allow that to happen - not in a million years!