Middle Class Tax Cuts

[keepitsimple]

You said:

"And the growing chasm between the Two Americas is chillingly documented in a report released this week by the Economic Policy Institute which shows how over the last few years 'income shifted extremely rapidly and extensively from labor compensation to capital income (profits and interest).' As Jared Bernstein, co-author of the report, put it: 'The
economic pie is growing gangbusters and the typical household is falling behind.'"

If Kerry/Edwards believe this is true and are really concerned, why don't they offer a tax bracket plan which heavily favors middle class working families? The republicans have always claimed the tax issue as their own. If Kerry/Edwards developed a tax bracket plan with a top bracket of 42% or so and which heavily favored the middle class, they could take the tax issue away from the republicans in a dramatic way. Why don't they do this for the Other America?

[Tom Healy]

The biggest problem for the working middle class is that the largest portion of the tax they pay is the payroll tax (social security and Medicare). this is especially true of self-employed persons. From incomes of around $30,000 to well over $100,000 the marginal tax rate for self employed is in the mid-40s. Example:
.....self-employment tax.....13% (reduced from 15.3% because half of that is deductible)
.....federal income tax........25%
.....state income tax.............5% (varies with the state)
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.....Total marginal rate.........43%
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At higher incomes the self-employment tax rate drops to around 2.5% (reduced from 2.9%) while the federal income tax rate increases, though not as much as it used to.

Compare this to the tax investors pay on dividend and capital gains income: about 20%, or less than half the rate on labor income.

So the best way to address the high tax rate paid by wage-earners is probably some form of expanded earned income credit to help offset the payroll tax. To offset that, investment income would need to be taxed more highly. Most people don't know that before Reagan became president, the top bracket for earned income was 50% while the top for investment income was 70% (as high as 90% in some years). That was the heyday for tax shelters. I don't think those stratospheric rates should return, but doing something to make tax rates for different kinds of income more equitable should have a high priority.

I don't expect the current administration to propose anything like that; they see that kind of credit as helping people who don't help themselves (which is bad), while tax breaks for the wealthy are seen as their reward for helping themselves (which is good). That is, being wealthy shows you are a "good" person, while barely making ends meet means you are "bad."

I agree with you that Kerry needs to propose something to help the middle class, but as I suggested last night, I don't think economic proposals will gain any traction against the zealous fervor of the Republican Right.