Coming soon? Tax inflation
It has been a long time - decades - since we suffered from tax inflation. In the late '70s a report from the Bureau of Labor Statistics regularly showed that taxes, not food or energy, were rising faster than all other expenses for most households.
Needless to say, the report embarrassed our friends in government. There, in black and white, the report showed the cost of income taxes rising faster than any other household expense.
Few were surprised when the Department of Labor announced it no longer had the resources to produce the report. Since then, most of the tax code has been indexed to inflation, so government no longer makes a windfall when inflation increases.
Today, we all face a different problem.
Taxes are going to rise. But we can't be certain of how much, or for whom. All we know is that the candidates for both parties have miraculously found a way to offer tax cuts to the vast majority of all taxpayers.
The rich aren't included in this, of course. But it doesn't matter. Their votes, alone, won't elect anyone president. Instead, both candidates rely on taxing the income of the most wealthy to provide tax cuts for everyone else - the more than 95 percent of all households that aren't considered wealthy.
The candidates make these offers in spite of the rising federal deficit, the rising cost of imported energy, our balance of trade, the soaring cost of Medicare, the declining dollar and the ongoing cost of the war in Iraq. The last item, alone, is now clocking past $560 billion. That's enough to manufacture and put in service over 22 million new fuel-efficient hybrid automobiles and dent the supply/demand balance for energy from the Middle East.
In other words, the candidates from both parties have close ties to the Tooth Fairy.
Let's consider some basic facts. According to the most recent analysis of IRS data done by the Tax Foundation, an income of about $153,000 would put you in the top 5 percent of taxpayers. Only 1 percent of households have incomes over $388,000. You were in the top 10 percent with $109,000, the top 25 percent with $64,700 and the top 50 percent with $32,000.
If you then go to the Tax Policy Center Web site and check its analysis of tax proposals from the candidates, you'll see something very interesting. Both candidates are offering a tax cut to every household with a taxable income under $200,000. Under the Obama proposal, for instance, a household with two earners and no dependents filing a joint return with $200,000 of taxable income would enjoy a tax cut of $6,474. Under the McCain proposal, the same household would enjoy a tax cut of, gee whiz, $6,474.
Candidate Obama would give a larger tax cut, $1,049, to a two-earner household with an income of $75,000 than candidate McCain, $721. Most income levels will find that candidate Obama is offering the greater tax cut (see table).
AND A TAX CUT WAS OFFERED TO (NEARLY) EVERYONE-
This table compares the tax cuts expected from the programs offered by both presidential candidates for more than 95 percent of all married households. Cuts were similar for single and head-of-household returns.
Income level ... Obama tax cut ... McCain tax cut ... Difference
$10,000 ... $606 ... $0 ... $606
$25,000 ... $1287 ... $0 ... $1287
$35,000 ... $1429 ... $481 ... $948
$50,000 ... $1004 ... $721 ... $283
$75,000 ... $1049 ... $721 ... $328
$100,000 ... $3043 ... $2759 ... $284
$150,000 ... $4724 ... $4921 ... $(197)
$200,000 ... $6474 ... $6474 ... $0
Source: Tax Policy Center, www.taxpolicycenter.org/numbers/displayatab.cfm?Docid=1840&DocTypeID=7
Do you really believe either candidate will be able to cut taxes for 97 percent of all households by increasing taxes on the other 3 percent?
I don't.
The political definition of wealth is notoriously flexible. And surprisingly low. After the election, Congress may determine that you are "wealthy" if you are in, say, the top 25 percent of income earners - $64,700 or a similar level. Remember, these are the folks who decided that you should pay taxes on your Social Security benefits if your income exceeded $32,000 for a couple.
That's why tax inflation may soon be added, with food and energy inflation, to our list of woes.