Tag Archives: State and Local Taxes

Tax Cuts vs. Tax Reform

The Republicans have set themselves the goal of passing tax legislation by the end of the year.  They took a major step by passing a budget resolution this past week which authorized tax legislation as long as that legislation had a net cost of less than 1.5 TRILLION over the next decade.  As such, as long as the CBO scores any legislation as complying with that cap, it is exempt from a filibuster.

That cap reflects a significant part of the current debate inside the Republican party — do they want a tax cut (reducing the overall tax burden) or tax reform (a revenue-neutral rewrite of the tax law).  This debate will be significant because the Republican approach is that those who make the most money pay the most taxes and therefore should get the most relief.  Thus, their proposals will be very top heavy on who gets the relief and the deductions most at risk will be those that benefit the middle class.

First, some Taxes 101 to set the background.  Both at the corporate level and at the personal level, calculating taxes begins with defining income.  Then there are certain authorized deductions from income that lead to a smaller income that qualifies as “taxable income.”  There are then income brackets in which you pay x% for the first $Y amount of income, than pay a slightly higher rate on the additional income above that amount (and just that additional income).  (E.g., If the top tax bracket is 40% and kicks it at $500,000, the taxpayer is only paying 40% on the income above $500,000 — so on an income of $700,000 that 40% only applies to the last $200,000 of income and the first $500,000 is taxed at a lower rate. )  After taxes are computed, the taxes can be reduced by tax credits. Continue Reading...

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