brunobaby

Guest Blogger today. Barry Feldman e-mailed this insightful treatise to me and several other friends/relatives the other day, and has given me permission to post it here. Barry is a sharp, no-nonsense guy, and I say this because 1) he's my uncle, and b) I agree with what he's written here. He begins with a sentence I've found myself saying all too often in the past couple of years.

I am by no means a crazed left wing liberal, but recent events have left me shaking my head regarding what is going on in this country regarding tax policy and the gasoline crisis. I know that we are still paying substantially less than people in Europe, but I get little solace from that. As a chauvinist who believes that this country has the ability and resources to solve problems more efficiently than our European brothers and sisters, I think the people in Washington, D.C. have not been fully utilizing the brainpower which it has available to it in solving these problems.

In particular, the most recent Republican proposal seems a bit short sighted. Furthermore, even in its shortsightedness, it doesn't seem to really accomplish what is presumably intended. Rather, the Republican approach seems to follow what they usually refer to when Democrats and Liberals do it as the "let's just throw some money at it and the people will be happy and think we're actually doing something."

As I alluded to earlier, I like to think of myself as a moderate with no particular axe to grind. I don't think that all wealthy people are evil, nor do I believe that all poor people are lazy. Some Liberal ideas are good while some border on insanity. Some Conservative positions have the ring of reality, while some of their positions express a veiled form of unjustified elitism. With all that having been said, I turn to the events of the last nine months and, in particular, the past few weeks.

Let me see if I have this straight –

• In 2005, the Bush Administration pushed through an Energy Bill which provided a few billion dollars in tax relief to the major oil companies, who apparently were having a rough go of it, having only made 10 or 12 billion dollars each over the preceding 12 months [and one of which would soon give its outgoing leader a retirement package of approximately $400 million (notwithstanding he would be leaving the company in such dire straights with a net worth of only $100 - $110 billion give or take a few dollars).]

• At the same time, or shortly thereafter, the Bush Administration (using the efforts of Sen. Bill Frist in a Republican-controlled Senate) declined to pass alternative minimum tax (AMT) relief for the millions of middle class Americans who are being forced to pay this tax solely because of the increase in wage incomes due to inflation since 1986, even though the AMT was enacted to cause the wealthiest 1% of taxpayers to be forced to pay their fair share of taxes and was never intended to include the middle class.

• Simultaneously, the Bush Administration used the Republican-controlled Congress to continue to tax dividends and capital gains at only 15%. By doing so, tax relief is being provided primarily (although admittedly not exclusively) to the wealthiest 1% of taxpayers, who receive the most dividends and capital gains.

• Thus, as a result of these machinations, many middle class Americans will be subject to a tax of 26% on income that should actually be taxed at only 15%, while the top 1% of taxpayers (for whom the AMT was created in the first place in 1978) will be taxed at 15% on income that should have been taxed at between a 26% and the 28% top AMT rate. Amazingly, when relief in the recently passed budget for middle class taxpayers from the AMT was proposed, Sen. Frist declined because it would have meant eliminating the taxation of dividends and capital gains at only 15%. The two measures had almost the precisely same effect on the budget.

• So now, having shifted the tax burden from the wealthiest taxpayers to the middle class, we now are confronted with the gas crisis, to which the Republican response today is to take a substantial portion of the taxes paid by the middle class through the AMT ($100/per household x 100,000,000 households = $10 billion) and give it back to the people so that they can spend it on gas. Thus, passing on the $10 billion indirectly to the major oil companies.

• As a result of the tax breaks already in place for the oil companies, this will probably be taxed at an effective rate of less than 35%. However, assuming this is the rate, its shareholders will receive approximately 65% of the $10 billion (i.e., $6.5 billion).

• If only one-quarter (¼) of these funds is received as dividends by the wealthiest 1% of taxpayers (i.e., $1.625 billion) and they pay a 15% income tax on these funds, as provided under current law, the net to them after taxes is $1.38125 billion ($1.625 billion x 85%), which represents funds transferred from the pockets of the middle class to the wealthiest 1% of the taxpayers.
  
  
  
• From this, it would appear that the Bush Administration sure has a handle on solving the energy crisis . . .