Tax Cuts for America

November 2003

The majority of Americans never look past their own needs. If Americans would look at the needs of America as a whole, they would be able to see how it could benefit them individually. I will apply what I call common sense logic to the tax cuts that were suppose to stimulate the American economy by creating more disposable income for Americans to buy the products companies produce.

This is a capitalistic society which means it is a supply and demand format of doing business. When companies produce products and demand for the products are not strong a company’s inventory grows because the products are not being sold. This is bad for America and Americans. This means a company’s stock price loses value, the company resorts to layoffs of employees to reduce expenses which gives a false perception that the company’s profits increased. The reason I say false, because the company did not increase profits by selling what it produced but by layoffs of employees who should be considered a company’s assets. This is the domino effect I have spoke about in previous commentaries on this website. When companies layoff employees it reduces the consumer base for the products American companies produce because employees are the customers that buy these products.

The present tax cuts that were given to Americans benefited Americans with the most income, I say this because when dealing with percentages (taxes are applied as percents) the larger the amount the percentage is applied against the larger the results. Here is an easy way to look at this:

$100.00 income tax at 10% ($100.00 x .10 = $10.00 in tax leaving $90.00), now apply this to:

$1000.00 income tax at 10% ($1000.00 x .10 = $100.00 in tax leaving $900.00) the more you make the more tax you pay.

Looking at this in reverse, say the 10% tax is reduced for the $100.00 income by 2%

($100.00 x .08 = $8.00 in tax leaving $92.00)  

now apply this to the larger income of $1000.00 and reduce the tax by 3.6%

( $1000.00 x .064 = $64.00 in tax leaving $936.00).

The difference is amazing, the $100.00 income made $2.00 more while the $1000.00 income made $36.00 more. This is basically how the present tax cuts worked, the more money you make the larger the tax cut is and the more money you are able to keep. Think about this, who needs money more during a recession, a person making less than $50,000 a year or a person making over $145,000 a year.

The problem with the tax cut is it means the majority of Americans received very little tax relief or extra disposable income to buy products that companies produce. This would not be a problem if the Americans with the highest income (around 2% of  all Americans) were able to buy more than one Washing Machine, one Car, one House, one Cell Phone, one Computer, one TV, one VCR, one DVD Player, one Camera, one Internet Service, one Cable Service, one Bed, one Set of Dishes, one Set of Pots and Pans, one Set of Towels, one Set of Clothes and so on. If the tax cuts had benefited the majority of Americans (the 98% left), a lot more products companies produce would have been bought. This would have stimulated the economy sooner and made the recovery stronger by reducing the need for layoffs or maybe even creating more jobs.

This could have been done if the government's tax surplus had not been managed in such a negligent way. It seems like the thought process was, it’s not my money so let's give it away to look good and make people like us. But the thought process should have been, it is my money and I need to treat it like the majority of Americans treat their money when trying to manage a budget. We don’t give money away to look good and make people like us. We manage our extra money to be prepared for hard times which always seem to come. The worse part about giving the surplus away is it did not benefit the majority of Americans as much as it would have if the government had kept the surplus to pay for the record deficit that giving it away caused.

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The present tax cuts should be replaced with cuts like the following suggestions:

1)      Businesses should get some type of tax cut based on the following criteria: the salaries paid above minimum wage to employees combined with the number of employees receiving salaries above minimum wage. The higher the salaries combined with the number of employees receiving these salaries, the greater the tax cut should be. This would make companies think less about sending jobs out of America and using layoffs as a tool to falsely inflate profits. Jobs sent out of America should be considered a type of layoff because it reduces the workforce. This would also benefit the Federal and State governments by the uninterrupted revenues from income taxes, sales taxes on products and the need to pay unemployment benefits which is an unexpected expense.

2)      Because Americans were buying houses they were saving money, the tax on saving’s interest should be changed to something like the following: there should be a non-taxable maximum, say any interest earned $100,000 or below would not be taxed, interest above $100,000 would be taxed at the previous rate before the present tax cut. This would be beneficial to everyone, the majority of Americans would be able to use the money to buy more products and the Americans with the highest income should still appreciate $100,000 free of tax. This would also create competition between Banks for depositors because people would look for the highest interest paid on savings and increase the number of Americans wanting to save money. The way the tax system works now Americans are just increasing their taxes because of the earned interest taxes. Something like this could also be done with dividends from investments and capital gains.

3)      The tax rates I think would be beneficial for all Americans are in the table below. These tax cuts would need to be researched to determine the impact they would have but if the government still had the tax surplus, these tax cuts or something close probably could have been implemented. The new tax rates and the old tax rates are included for you to compare.

Here is an example on how to use the tax tables above using the new tax rates:

You have a TAXABLE INCOME of $50,000, which means your income falls in the:

You would have 21,600 over (50,000 – 28,400 = 21,600) that would be taxed at 25% (21,600 x .25 = 5,400) you would add the tax amount of 3,910 and the over tax amount 5,400 (3,910 + 5,400 = 9,310). Your tax would be $9,310 on $50,000 of taxable income.

4)      You may have noticed that the top tax rate was reduced by only 6 tenths of a percent in my tax table, this may mean someone paying this rate could only buy a 5 million dollar home instead of a 10 million dollar home but the American economy would be stronger. Americans with the highest income would be able to invest in a strong American economy and make enough money to get that 10 million dollar home instead of sitting on their money and waiting for tax cuts or finding ways to avoid them. Americans with the highest incomes should think about America as a whole, by this I mean since they were able to attain great wealth because of America they should be happy to keep America strong by paying taxes. They still have great wealth even after paying taxes that they probably couldn’t have achieved anywhere else. I believe the only reason for great wealth is for the power to make people do as you want them to do because money is either needed or greatly desired by those without it. The only person in America that should come close to that kind of power is the President of the United States and he should not have that kind of power over people either. The reason for cutting taxes is to put more money into the majority of Americans hands who are the consumers of the products that American companies produce. American companies need consumers, consumers need jobs and money to buy products, America needs strong companies to stay a strong nation, selfishness and greed will destroy our country. 

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