The recent discussion about people who pay $0 in taxes prompted me to search the web for a better understanding of the Bush tax cuts. I came across the Tax Foundation website where there is an interesting calculator. The calculator lets you compare various proposals and other scenarios such as 2011 income taxes with and without the Bush tax cuts.
Here's what I learned: If a married couple with one child earned through wages $76,000 their 2011 income tax would have been $6,145 (assume standard deduction for all these variations). Without the Bush tax cuts their 2011 tax would have been $7,788 (because of a smaller child tax credit and the marriage "penalty" lower standard deduction).
However, if that same couple received income only from qualified dividends and long-term capital gains their 2011 income tax would have been $0. That's right, ZERO dollars. Without the Bush tax cuts they would have paid $5,888. Whether you get your income from a 9 to 5 job or from stock investments, it seems to me that you are still making use of federal services (highways, port inspectors, FBI, NSA, food inspectors, and military to name just a few). Should the investor get these all free?
While I buy the argument that investment income should be taxed at a lower rate (because the money is being put at risk and corporations have already paid taxes), I think a 0% tax rate is too low! We can't afford to be so generous. Unfortunately, neither side in the political debate is proposing fixing this gaping hole. I guess such non-payers due to Bush tax cuts are welcome on both sides. I'd like to hear a politician say let's extend some of the Bush tax cuts but not all of them.