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  • April 15, 2009 06:49 PM EDT by Brian Sullivan

    The Odd Math of Tax "Cuts"

    Let's talk taxes and basic math.    There seems to be a lack of understanding of both by many in Washington and in my own industry.   The claims and the numbers don't add up.

    But before I get to that, one quick point.   For the life of me I cannot figure out why so many news and media outlets are upset about the tea party protests, to the point that they make fun of the attendees.    At the core, even if you disagree with the events the right to gather and protest is one of the most American rights of all.    Its formed the political basis of this country for years and has been at the root of many great changes.   Free speech is a special privilege, envied by many living in repressed regimes around the world.    Many of the same crowd who tell upset viewers to simply "don't watch it" when something viewed as offensive crosses the airwaves are the same people who now want to denigrate events that mean a lot to others.    Odd.

    But let's move on and get back to the issue at hand.

    Even with the all the agendas - which is everyone's right as well  - there seems to be a bizarre lack of understanding by many in the media about taxes.

    We hear so much about how the Federal government is "cutting taxes for 95% of Americans."    We heard it today, we hear it every day, and there are few in my industry who will actually challenge the Administration on the basis of this claim.   They should, because while the federal income tax withholding tax tables have changed, the other numbers don't add up.

    Here are some of the facts:

    First, an estimated 43% of Americans pay no net federal income taxes.    They may pay, but credits and deductions entitle them to a refund greater than what they pay.    If you pay $5,000 in taxes but receive $6,000 back, you haven't "paid" any net income tax.   In 2005, the bottom 40% of earners received more than $33 billion in money back from the government.    Most workers do pay payroll taxes, but in many cases the net return on the income tax side is even greater than that amount.   With so many percent paying nothing in net taxes, it is difficult to figure out how "95%" of Americans" received a tax cut.   One can say that many Americans "received a tax break," but don't call it a cut because its hard to cut from zero.

    But let's move on even from that.    The federal government is putting put extra money in many American's pocket as is shown from the results of my previous blog posting.    Less in federal withholding equals more in the paycheck.   The key word here though is "federal."    If the average American household receives an extra $66 dollars per month ($800 per year for a two income household as promised by the President), those "savings" are likely to be more than negated by increases in state, sales, property and other tax increases.

    Second, we know that numerous states are considering raising taxes, and not just on the wealthy.  As reported recently by the Wall Street Journal:

    Delaware Gov. Jack Markell wants to raise the marginal income-tax rate by one percentage point, to 6.95%, on those earning more than $60,000 a year, effective in 2010. His budget plan also includes increases in corporate taxes as well as spending cuts to close a projected $750 million shortfall in a $3 billion budget, said spokesman Joe Rogalsky.

    That means residents in many of those states may see their state income taxes rise, even if they aren't "rich."

    And what of other, higher costs many Americans face?

    Here are just a few examples:

    Numerous localities are or are considering raising property taxes:

    Faced with revenue shortfalls, local governments across the U.S. are raising property-tax rates, angering homeowners already hit by the housing slump and economic slowdown.  Spring Valley, N.Y., approved a 9.7% increase in the property-tax rate to balance its budget. A number of fast-growing suburbs around Washington, D.C., have raised rates, while Memphis Mayor Willie Herenton has proposed a 17% increase in the property-tax rate to close a budget gap.

    "Sin" taxes are in as evidenced from today's Wall Street Journal article on beer:

    Today is the dreaded April 15, but at least in Oregon it's even going to cost you more to drown in your tax sorrows. In their sober unwisdom, the state's pols plan to raise taxes by 1,900% on . . . beer. The tax would catapult to $52.21 from $2.60 a barrel. The money is intended to reduce Oregon's $3 billion budget deficit and, ostensibly, to pay for drug treatment.  If it passes, Oregon will overnight become the most taxing state for suds, one-third higher than the next highest beer tax state, Alaska. The state may do this even though Oregon is the second largest microbrewery producer in the U.S. The beer industry and its 96 breweries contribute 5,000 jobs and $2.25 billion to state GDP. Kurt Widmer of Widmer Brewing Co. says the tax would "devastate our company and small breweries throughout the state." Adds Joe Henchman, director of state projects at the Tax Foundation, "This microbrewery industry has gravitated to Oregon in part due to low beer taxes."

    If you smoke, you are going to pay more as well.   From North Carolina:

    A federal cigarette tax of 62 cents per pack that went into effect this month triggered an increase in prices, and manufacturers are buying less tobacco in anticipation that sales will slump.  "We got an immediate 15 percent cut in what we could grow this year on contract," Nash County farmer Greg Bunn said. "It's a 15 percent pay cut really, because I would say 90 percent of my income is dependent on tobacco."

    Shopping is getting more expensive in California:

    Californians will start feeling the pain of the recently negotiated state budget fix on Wednesday, when a 1-percent increase in the state sales tax will force consumers to pay more for goods such as cars, furniture, laptops and toys. Starting Wednesday, California's sales tax will rise to 6 percent, bringing the average local sales tax rate to almost 9 percent -- one of the highest in the nation.

    And also possibly more expensive in Washington State:

    Voters might be asked this fall to increase the state portion of the sales tax from 6.5 percent to 6.8 percent for two years to restore an estimated $650 million the Legislature is expected to cut from health care programs.  A coalition of health care advocates, including hospitals, clinics, home care workers, nursing homes, nurses and retirees, is behind a tax package that might appear on the November ballot.

    Residents of Philly may get a double-whammy:

    The Philadelphia Daily News reports this afternoon that Philadelphia Mayor Michael Nutter will seek higher sales and property taxes to help balance next year’s budget.  Both tax increases are included in a budget draft that has been given the city council. If approved, they would take effect this summer.

    And these are just a few of the many such stories around the country.    I'm sure most readers of this will have their own "higher cost" story from the state or city where they live.

    Yes, there are some generous tax credits coming for first time home buyers, buyers of energy efficient appliances, etc, but those have caveats.   Many require the purchase of goods at a much higher cost than the credit gives back to take advantage of them.   Additionally, the much-touted first time home buyers tax credit not only phases out for some people but also likely "stablizes" the housing market enough that would result in a higher cost the buyer for the home than the tax credit refunds.   Even the additional college cost credit is going to be negated by sky-high higher education cost inflation.

    Not everyone will be hit by these higher state, sales, "sin" and other taxes, but millions will be.   Americans are smart enough to know that if their federal tax goes down by $800 dollars a year but they are paying $800 (or more) per year in higher secondary taxes then there is no "tax cut."

    "Middle class tax cut" is a nice phrase that carries political capital for the White House, but I'm willing to bet that most Americans dont care who is taxing them, just how much they are being taxed in total.

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ThinkLikeRand

CJJ says: "Where was all this when Bush was president? How did those great tax cuts work out?" You apparently forgot about the stock market crash under Clinton. His poll #'s were "above 60%", yet his lapdog lost the election. And after 9/11, the major indexes were down over half ( nasdaq down 80%). Yet the Dow and SP came back to set new highs with the tax cuts Bush pushed. THERE IS THE MATH. The fact of the matter is the stock market crashed, AND the house of cards pushed by Bawney Fwank, Dodd, and Max Waters crashed as well, when it became obvious an incompetent "community organizer" (weren't Chavez, Castro, Lenin and Mao the same thing?) was receiving a full-blown parade by the leftist media. And he still only got what , 53%? Don't count the dead and the felons please. "ish Kabibble says: April 17, 2009 at 3:10 pm Left-wingers upset at the tea parties?" Yes, they were frothing. If there had been 20 Code Stinks in front of Walter Reed again, protesting against brave soldiers, there would have been 6 camera crews from each liberal media outlet. But if 300,000 people, in all 50 states, demonstrate against an irresponsible, fiscally oppressive gov't that is dooming our kids chance at a future, that is news. But lil Annie Cooper, Rick or Rachel Maddow ( can't tell until the operation and hormone treatements are complete) making ref's to teabagging as innuendo, yes, there Beavis and Butthead intelligence was fully on display. The polls are fixed, as always.

April 19, 2009 at 5:21 am

SeeSawSoSad

Disingenious to say that taxes are being raised because Obama is cutting taxes. They are raising taxes because properties values fell in the U.S. Thus, less tax revenue. And, the $33 billion for the 154.8 million poor in this country adds up to less than $213 per person. Less than what the Bush tax cuts gave them. I get it; it's OK for your guy. Not OK for our guy. How about we try to come to a middle ground nation? Huh...for George Washington and Lincoln....all the patriots

April 18, 2009 at 3:31 pm
(1 Reply)

ish Kabibble

Left-wingers upset at the tea parties? Oh come one! I haven't heard ANYONE of my acquaintance (and yes, I'm active in Democratic politics) give it as much a moment's attention. Some few tens of thousands of well-meaning right-wingers were cajoled into attending gatherings without a stated objective. General discontent, sure, but that was about it. And all that after ceaseless promotion by the Fox apparatus. How you folks going to keep this phony "movement" alive? good luck.

April 17, 2009 at 3:10 pm

Mike

Hey, Brian - a side question: where is Elizabeth McDonald? She was the 2nd best commentator on FoxBusiness and I always liked her analyses; now she's gone. Did the Bosses get rid of her because she was "too conservative" even for Fox? There's so few good analysts; we have to cherish everyone like you and Liz.

April 17, 2009 at 1:25 pm

andy K

reply to Jayson, true tax money does provide a lot of benefits to communites, but your statement of recreation and community housing is good argument against government not providing. I use recreational areas and have to usually pay anyway. They should up the price so that the people using the facility is footing the bill not everyone else that doesnt use them. And look at community housing. When it is provided at low or no expense people trash them because they have no monetary or sweat equity in them.(Look at the indian reservations, poor neighborhoods and not so poor neighborhoods) The facilities are trashed in a matter of months because of no inititive and no pride. Just give give give and people will take take take. Ive been poor and with no handouts and no help, just a lot of hard work I'm doing ok now and dont want to give it all away to people that dont want to work.

April 17, 2009 at 10:52 am

Kathy

Yes, Federal is cutting taxes. However, as you mentioned my State taxes are going up. My local town taxes are going up. My state is taxing everything. Including businesses and their products they need to buy. How can anyone get ahead besides we need jobs and my state is taxing small business! It looks like the Federal Government is taken the burden off the American people and the other hand State and Local government is slapping us with the other hand. The point here is that Jobs are at a stand still and many of us will be coming off of unemployment and we have no idea if we will have a job to pay these taxes.

April 17, 2009 at 8:03 am

Cindy

Brian, all I can say is that I am so grateful we have you and some others at Fox Business to speak up for us and ask the questions we'd like to ask. I am constantly arguing with my brother over these so-called tax cuts for 95% of Americans and what it really means. He just doesn't get it so I'm forwarding your comments to him tonight. Maybe YOU can get through to him! I keep telling him to turn off MSNBC and watch Fox where he'll get some honest reporting. And thanks for supporting those of us who attended a tea party. We're not crazy. We were simply expressing our frustration with these excessive taxes while we still have the freedom to do so.

April 16, 2009 at 10:35 pm

CJJ

Hey Math Man, Where was all this when Bush was president? How did those great tax cuts work out? I'm glad you're asking the "really tough" questions now and blaming them on the administration that has been in office for 3 MONTHS. Many people were not making fun of the fact that people were protesting, many people reporting against the Tea Parties were THERE. What they are making fun of is comments like: 1.This is a grassroots movement. (Sure some people are for this effort and they came to it grassroots style, but much of it was lobbyists and special interest groups). 2.There were thousands and thousands of people at the Tea Parties. Funny Fox News had to downgrade their headline of Thousands to Hundreds in 1 day after these "contrary" reports. 3.Many of the protesters held racist signs and we can argue that many were not there to protest taxation or representation. 4.That Republicans are trying as hard as possible to latch onto this when the real "grassrooters" aren't republicans, if anything they want a 3rd party, which I for one am all for. 5.That some of these people were using their kids as propaganda puppets. 6.The polls show that these people ARE NOT the majority. So stop claiming you are. These people were not against the protests, they just weren't caught up in it like Fox News: Just because you have a protest doesn't make you right. Even if some of these people have valid concerns, many do not. Being angry and loud doesn't make your point valid or correct

April 16, 2009 at 8:32 pm
(1 Reply)

Tom S

Reply to Eddie Glance.. the $400 Individual or $800 MFJ refundable tax credit is factored into the new withholding tables. You're correct,the income tax tables are not changing but this tax credit has the effect, in the end, of reducing your income tax liability by either $400 or $800; you're receiving the benefit of the credit this year instead of next year at tax time.

April 16, 2009 at 11:26 am

charles c

You can probably further reduce the number of Americans who are actually gettinf a tax cut. A notice received on my retirement check indicated that pension benefits do not qualify for the tax reduction. Talk about helping the low income! And to make matters worse, the tax law also requires them to use the new withholding tables even though pension benefits are not getting the tax reduction. So come next April we will be under withheld. Thanks Mr. President.

April 16, 2009 at 11:14 am

Jayson M Davidson

Also curious... Is it not a user-pay-system to a point? Is it not all relative? Someone earning only 20K should get tax breaks - grin And someone earning 200k and is taxed at 50%, thus making 100k - who cares if you have to pay 100k in taxes, as you are still earning 80k more than the person only earning 20k with tax breaks - I know who I'd rather be, the one earning 200k - smile! Are we forgetting the money that we actually make and not necessarily what taxes we pay? And the obvious - for every action, there's a positive and or negative reaction! Taxes provide the perks we consider without thought - rail, roads, services, health care, technology, recreational grounds, community housing, and the list can go on. These are just a few of what is provided for us via the taxes we pay... "SPEND money to MAKE money"! I'm happy paying whatever taxes are required, for the life I'm provided by others - grin! Enjoy!

April 16, 2009 at 11:09 am

Mike from Pennsylvania

Let me first tell you, Brian, that you're by far the best commentator on this site (the 2nd best - a nice and smart woman - just disappeared?). Secondly: both of your questions have the same reason beneath. So-called "mainstream media" doesn't accept Tea Parties because these "elite" journalists all have Socialism deep in hearts. Our current adminstration and "Democratic" majority of the Congress have the same attraction to Socialism. Therefore, both groups apply all efforts to mislead the public with misinformation and direct lies. Thanks to you and other folks on Fox (not everybody, unfortunately) - we can see some thuth.

April 16, 2009 at 11:01 am

David_the_Great

I am a single hetrosexual man without any dependents. According to the elite, they calim that I am rich. This is someone making $62,000 year. I do not considered myself rich.

April 16, 2009 at 10:35 am

Bert

And for those liberals who just want to restore the tax tables to what they were when Clinton was president -- they don't want to tell you that a household (not individual) income of $54,000 got you launched into the category of "wealthy." They are liars by omission.

April 16, 2009 at 9:15 am

Eddie Glance

I am disappointed in your innacurate coverage of the tax cut. Yes the withholding tables have changed but the tax rates have not! This dupes the taxpayer into thinking he is paying less but come tax time next year he will see that either his refund is smaller than last years or he now owes money. Your article should have addressed this because 'that man' is lying to us and no one is willing to call him on it.

April 16, 2009 at 9:09 am

andy K

The sad thing is that many if not most have no idea what they pay in taxes a year. I have pointed out the sin taxes,property taxes,sales taxes,income taxes,vehicle taxes,personal property taxes, to many people and they dont really count most of them as taxes. A tax is a tax no matter what they call it. This will not change until we start remembering this crap at election time and quit voting in the guy with the best TV ad or the one with name recognition or the one with the most money. We have short memories and often forget what happened only a few short months ago. We must wake up and study voting records and past performance, not what they say they will do in the future. For the people that want a socialist system then get out. Go find one and move there. Oh wait, they wont just let anyone in their country. They have immigration laws and enforce them.

April 16, 2009 at 7:38 am

Corey in GA

The people who are offended by the tea party probably don't even realize how hypocritical they are. People who would be absolutely mortified at accidentally having a candy wrapper fall out of their car onto your driveway think nothing of stepping on a cigarette butt and just leaving it there on the middle of your driveway, even right in front of you. As a strong opponent of Obama and his policies, I want to agree with criticism. In this case, I think you are too focused in your evaluation of his statement. I think most people understand that when 95% of people will receive a tax cut, those who already paid none would not get negative tax flow (although your example appears to indicate a $1000 negative tax flow). More importantly, Obama cannot be expected to be referring to all taxation, since he has much less control over state and local taxation, but more importantly cannot possibly speak to overall taxation since state and local taxation is so highly variable. As for the "who" of taxation, I am one who cares greatly who taxes me. I greatly prefer state and local taxation since the benefits (theoretically) are more localized and I (again, theoretically) have more of a voice in the use of the revenue.

April 16, 2009 at 6:57 am

Bob

Don't forget that when the Bush tax cuts expire (I think at the end of 2010) we'll all see a substantial tax increase. You can verify the numbers at irs.gov. If you compare the 2008 tax rate schedule with 2001, you'll find that in 2008 the first 16,050 on a joint return is taxed at 10%. Before the Bush tax cuts that income was taxed at 15%. The rates were reduced for all income levels. A married couple with taxable income of $75,000 would pay $14,975 using the 2001 rates and $10,447 using the 2008 rates. That is a substantial difference. The phrase 'Tax cut for the rich' is totally incorrect. Unless those cuts are extended, a lot of people will be very surprised when their paychecks decrease in 2011.

April 15, 2009 at 9:58 pm

about this blog

  • Brian Sullivan joined FOX Business Network (FBN) in April 2008 as an anchor. He co-anchors the 10am-12pm ET hours of the FOX Business block. Prior to joining FBN, Sullivan served as an anchor for Bloomberg Television where he hosted the programs Morning Call and In Focus.

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