Thursday, November 29, 2012

Tax Quiz

It looks as if President Obama is sticking to his guns to let the Bush tax cuts expire for those folks who make the most money and keep them for the rest of us.  That’s what he campaigned on, that’s what he won on, that’s what the majority of the voters told pollsters after the election, and that’s what has the Republicans whining about how it’s the end of the world as we know it: it will bring capitalism to its knees under the crushing yoke of Socialism.  Or something.

But just how much will raising the tax rates on the highest income earners cost them?  Do you know?  Do they?  CLW came up with a little quiz to test your knowledge.  Ready?

Let’s say I’m a chiropractor with a thriving little practice, just me doing the voodoo and the wife handles the appointments and books.  I book out at $100/hr, see 5-6 people a day, work 4 days a week, (Wednesday IS for golf, you know), and take a couple weeks off every year to go on a cruise.  We write off the office costs, my Benz, and the wife’s Escalade as business expenses.  It’s a pretty good life.  We voted for Romney because this “tax the rich stuff” is garbage.  If the tax rates go back to the Clinton rates, my taxes will go up by:

a) $4,500  b) $0  c) $1,200  d) $10,100

The answer, of course is (b).  You clear, after write-offs, something like $50k a year and won’t be effected.

But wait, that’s not fair.  I’m a contractor, and I have way more business than that, I have two full time guys working for me, and bring on as many as five more in the summer to help me make things work.  My business does about $350,000 gross, and this calling the rich people who make more than $250k will kick me in the groin!  If the Bush tax cuts go away, my taxes will go up by:

a) $138,600  b) $2,800  c) $0  d) $13,600

The answer, of course is (c).  There is no way you clear 70%+ profit on a contracting business, so you net less than $250k and won’t be effected.  Realistically, you probably clear something like $75k, and if you can’t make your tax return say that, you need another accountant.

But wait, that’s not what we’re talking about.  I’m a Warren Buffet junior, got most of my wealth from my parents, and I get my income from investments.  I cleared $500,000+ last year in investment gains, and this Obama socialist is going to take it all away.  If he succeeds, my taxes will go up by:

a) $18,000  b) $198,000  c) $12,300  d) $0

By now you know, the answer is (d).  You make your income from capital gains, and those taxes aren’t even part of the deal (yet).

But you’re not being fair.  I’m a CEO of a middle-sized manufacturing business, we do $10.5 million a year and employ 32 people.  I’m the proverbial “job creator” and I pay myself $300,000 a year.  Despite my tax accountants best efforts, writing off everything, including the country club membership and my cars, we just can’t live on less than $25k a month.  With all this noise and now my bought and paid-for Republicans going back on Grover’s tax pledge, I’m going to get screwed.  If this goes on, I’m going to close up shop and lay all my people off because my taxes next year will go up by:

a) $0  b) $10,800  c) $1,800  d) $118,800

This one’s the only one who will see a tax increase; the answer is (c).  Really, $1,800.  That’s 0.6% of the total income.  That’s what we’re arguing about.  That’s what the Republicans have been “going to the mattresses” on.  We are headed over the fiscal cliff over this?  $5/day?

Come on folks, let’s get real.

This is where the message needs to be really clear: there’s a big difference between how much you actually pay taxes on.  It’s not how much you earn, it’s how much you have left after you’ve taken all the deductions, credits, write-offs, and whatever else you are entitled to exempt according to the tax code.  (This is also how corporations like General Electric can get by with making billions in profits and not pay any taxes at all.  But that’s another quiz.)  But all we hear about from the right-wing noise machine is how much the “job creators” will get screwed by letting the rates on their income go up a whopping whole 3%.  OMG, Vladimir Lenin has risen from the grave.  The truth is that most of the people who earn a lot of money aren’t going to be paying much more than what they spend each day for one big latte at Starbucks.

The real problem is that even with that tax hike, the fiscal problem won’t be resolved.

By the way, anyone who uses “job creators” without rolling their eyes is not to be taken seriously as a commenter on fiscal policy.  They’re a hack.