2010/11/12

Comparison of Republican, Democrat and "my tax plan"

I just saw this nice infographic on the Washington Post comparing the Republican and the Democrat tax plan. It does give an idea of how skewed some of the proposed solutions are, but I think it does not do justice to what's really going on, and it even poses some interesting questions. I suppose I know little or nothing about taxes, and this is why these questions are interesting to me!

For example: why to people making less than 10K even pay taxes? Wolfram Alpha tells me that in 2007 there almost 26 million people, or 18.15% of americans who made less than 10K/year. However, their contribution to taxes yearly is only $800 millions / year. In this "trillion economy" it's in the noise. So no taxes seems appropriate and fair.

Furthermore, while showing that people who make more than a $1 million / year would receive $100,000+ if the Republican plan is approved versus a mere $6,000 in the Democrat plan, there is another way to look at these numbers, which in my view is more appropriate for looking at the impact a tax cut would make to people: not absolute numbers but percentages.

So what is the net tax cut we are talking about compared to the overall taxpayer's income? If you take this approach the overall graph becomes drastically different

As one can see from the graph above, the Republican and Democrat tax plans are pretty much identical up to a maximum income of $500,000 / year. That's interesting, as I believe this is well over 95% of the US population -- actually it's 99.27% as of 2007 according to Wolfram AlphaHowever, the Republican plan sees the cut in taxes (measured as a percentage of the taxpayers yearly income) sharply increase for those making up to a $1 million and more than $1 million, i.e. more money in their pockets as a percentage of their income. My assumption here is that if you make more than $1M up to billions, you will get taxed at the same rate as in the figure from the Washington Post for that bracket. I think this is the case in the tax code: after a certain threshold (>$1M) the tax burden does not change.

I think a better plan would be to restructure the tax cuts, so that we have a progressively decreasing cuts as a function of income. That's "my plan".

Posted via email from Traction Lobe