Tax Bracket Married Filing Jointly Single
10% Bracket $0 – $17,400 $0 – $8,700
15% Bracket $17,400 – $70,700 $8,700 – $35,350
25% Bracket $70,700 – $142,700 $35,350 – $85,650
28% Bracket $142,700 – $217,450 $85,650 – $178,650
33% Bracket $217,450 – $388,350 $178,650 – $388,350
35% Bracket More Than $388,350 More Than $388,350
The rates would be:
Tax Bracket Married Filing Jointly Single
8% Bracket $0 – $17,400 $0 – $8,700
12% Bracket $17,400 – $70,700 $8,700 – $35,350
20% Bracket $70,700 – $142,700 $35,350 – $85,650
22.4 Bracket $142,700 – $217,450 $85,650 – $178,650
26.4 Bracket $217,450 – $388,350 $178,650 – $388,350
28% Bracket More Than $388,350 More Than $388,350
The Median Household Income in the United States in 2010 was $51,914, so on a joint filling the average American household would see an increase in income of $1,383.42 “annually” with the new tax rates under Romney. (The reason annually is in quotes is that the median income should increase so the additional amount people receive would be higher each next year.) Since there are approximately 114,235,996 households in the United States the additional spending power of Americans would be $158 billion “annually.” (These statistics are assuming, for the sake of simplicity, that all households are married and filing jointly.)
$158 billion more in the hands of Americans is great for the American economy, but there is still one issue, a secondary issue, that people might bring up in order to argue against permanent income tax cuts and that is the change a permanent income tax cut has on Government Revenue. Before that issue is addressed, I’ll explain why this is a secondary issue. The Federal Government does not exist in order to rake in as much revenue as possible. The Federal Government is here for the people and does not exist to become as large and gain as much power as possible, so creating an atmosphere in which the economy can flourish so that people have jobs is more important than increasing revenue so politicians’ power increases and they can spend more. With that being said permanent income tax cuts increase revenue and, in this current specific case with unemployment (7.9%) and underemployment being as high as it is now, permanent income tax cuts would work very well.
A tax cut that increases revenue goes against conventional wisdom, so how is this possible? When you permanently cut income tax rates people have more money to spend. They may save some initially and pay off some debts at first, but they will spend and spending will increase with time as they realize they are getting this new increase in income each year. When these people spend, businesses have to start hiring to keep up with demand and investors invest in companies and start new ones as they see the economy improving and consumer spending increasing. As these businesses hire employees, unemployment decreases and people who were formerly unemployed are now paying income taxes. Now that these formerly unemployed people are employed they have money to spend which creates the same effect over and over and over. This will spiral down until the economy levels out (unless there is a serious crisis that destroys the economy like the financial crisis and housing crisis in 2008). (Other benefits of permanent income tax cuts are increases in corporate income tax revenue, increases in capital gains tax revenue, increases in payroll tax revenue, increases sales tax revenue for local municipalities and state governments, increases in state income tax revenue, increases in excise tax revenue, increases in people covered by health insurance, decrease in unemployment benefit payments, decrease in entitlement payments, etc. etc.)
Don’t just take my word for it here are some historical examples that prove my point:
1. Calvin Coolidge: Calvin Coolidge, at the urging of Andrew Mellon, reduced the top income tax bracket in the 1920s from 73% to 24% and “magically” unemployment reduced from 6.7% to 3.2% and real gross national product grew at an annual average rate of 4.7 percent between 1922 and 1929. Taxes paid by high income earners soared from roughly $300 million to $700 million per year. The share of overall income taxes paid by the group rose from about one-third in the early 1920s to almost two-thirds by the late 1920s. (Inflation was virtually zero between 1922 and 1930.) The total income tax revenue was $1.075 billion in 1922 and in 1928 revenue was $1.164 billion (a 7.7% increase with sharp income tax rate cuts).
2. JFK/LBJ: “It is a paradoxical truth that tax rates are too high and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now … Cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus.” – JFK
The Revenue Act of 1964 reduced the top marginal income tax rate from 91% to 70%. Individual income tax rates were cut across the board by approximately 20%. When the bill was passed in February of 1964 unemployment was 5.4%. Unemployment gradually decreased all the way down to 3.4% in 1968 and 1969. Total Federal Government Tax revenue in 1963, before the tax cuts, was $106.6 billion and individual tax revenue was $47.588 billion. In 1969 total Federal Government Tax revenue was $186.9 billion and individual income tax revenue was $87.249 billion (with a little less than 20% inflation in that time period). That is a significant gain in individual and total tax revenue in a 6 year period.
3. Ronald Reagan: Ronald Reagan sharply cut the top income tax bracket rate from 1981-1988 from 70% to 28%, but he also raised taxes in other areas, however, the large individual income tax cut trumps all the other smaller tax increases. Unemployment reached the highest level in December of 1982 of 10.8% and by the time Reagan left office unemployment was 5.4% (in January of 1989). In 1980, before the Reagan tax cuts began, the individual income tax revenue was $244.069 billion. In 1988, individual income tax revenue was $401.181 billion. Inflation over that time period was 43.5%, so revenue was still higher when factoring in inflation.
4. George W. Bush: The Bush Tax Cuts are the best example of effective income tax cuts (in terms of analyzing Mitt Romney’s 20% income tax cut) because they did not bring down an extremely high top income tax bracket like in the other examples. Bush cut the top income tax rate from 39.6% to 35%. The Bush Tax Cuts also cut the rates of the other income tax brackets including the bottom rate by 50% from 15% to 10%. These tax cuts went into full effect in 2003. Below are their results:
Tax Receipts by Year:
2003: Individual ($793 billion), Corporate ($131 billion), Capital Gains ($51 billion), & SS & MED ($712 billion)
2004: Individual ($808 billion), Corporate ($189 billion), Capital Gains ($73 billion), & SS & MED ($733 billion)
2005: Individual ($927 billion), Corporate ($278 billion), Capital Gains ($102 billion), & SS & MED ($794 billion)
2006: Individual ($1.043 trillion), Corporate ($353 billion), Capital Gains ($117 billion), & SS & MED ($837 billion)
2007: Individual ($1.163 trillion), Corporate ($370 billion), Capital Gains ($137 billion), & SS & MED ($869 billion)
(Inflation over this time period was 12.7%)
From 2004 to 2007, federal tax revenues increased by $785 billion, the largest four-year increase in American history. Unemployment in June of 2003 was 6.3% and unemployment dipped to 4.4% in May of 2007 (just before the financial crisis and housing crisis destroyed the economy).
If Obama wanted to reduce unemployment he would permanently cut income taxes, but that does not fit with his ideology even though tax policy should be based on math, reason, and historical information.
Vote for Romney as has the right ideas to get people working and to fix the economy!