Kay1, the one-size fits all is really pretty straight forward. We have a progressive tax system which simply says the more you make, the more you pay. But unlike a flat tax (for example a sales tax), where you pay a fixed percentage, income tax rates actually adjust (go up) as you make more money.
I don't know the actual figures, so let's just use some numbers off the top of our heads for an example. For convenience, we'll make them simple. Suppose you make $60,000 a year.
First you count your deductions, family, mortgages, other taxes paid, etc. This gives you a base amount that you pay NO taxes at all on. Let's say that's $15,000, so this part of your income is tax free. That leaves $45,000 taxable income.
The $45,000 is not taxed at a single rate. It begins at the lower rate (Use 15%). But only part of it is taxed at this rate (Let's say $12,000 of it). So your taxes so far are 15% of $12,000, which equals $1,800.
The remainder of your income jumps into the next bracket, say 28%. So you have the remaining $33,000 times 28% for $9240.00. Your total tax then is $11,040.00 ($1800 + $9240).
Now comes the tax cut. The change in the lower rate goes from 15% to 10%, which is retroactive, but will not change on your witholdings statement until Jan 2002. So your taxes for this year on that middle $12,000 goes from $1,800 (15%) to $1,200 (10%), or $600 less. That's a $600 tax reduction. However instead of making you wait until Apr 15th next year, you get the $600 check now. (Since it's a reduction of year 2001 taxes, you get the reduction in 2001, not having to wait until 2002)
Your remaining income $33,000 was taxed at 28%, but changes to 27%, an annual difference of $330 ($33,000 times 1%). Another way is that instead of paying $9240 (28% of $33,000) you only pay $8910 (27% of $33,000), or a difference of $330. That change is effective on your paycheck beginning July 1 of this year. I guess that would be about $6.34/week.
Now, for the one size fits all. The person making $70,000 still has the same $15,000 tax exemption, and the same middle income of $12,000, so the same $600. However, their income at the 28% level is $43,000 ($70,000 - $15,000 - $12,000) (compared to the other person's $33,000). So they get the 1% reduction in that, or $430, or about $8.27/week.
A person making $40,000 still has the same initial exemption and middle figure income so gets the same $600. However, their income in the 28% bracket is only $13,000, so they get that changed from 28% to 27%, ($3640 to $3510) or about $130 which is $2.50/week.
A person making $27,000 a year, is never into the 28% bracket. So they get the exemption of $15,000 and the entire remaining $12,000 is all in the lower tax bracket, so they also get the $600 reduction, but have no change in their weekly paycheck (Because none of their money was being taxed at 28%)
In summary, the impact would be:
$27,000/year, old taxes = $1800, new taxes = $1200, Total reduction = $600 ( = 2.22% of total income)
$40,000/year, old taxes = $5440, new taxes = $4710, Total reduction = $730 ( = 1.83% of total income)
$60,000/year, old taxes = $11,040, new taxes = $10,110, Total reduction = $930 ( = 1.55% of total income)
$70,000/year, old taxes = $13,840, new taxes = $12,810, Total reduction = $1,030 (= 1.47% of total income)
In summary a person making $27000 receives 58% as much money (actual dollars) as a person making $70,000 ($600/$1030), even though their income was only 39% as much. ($27,000 / $70,000).
Or, they go from paying an actual 6.66% of income ($1800) to 4.44% of income ($1200), a difference of 2.22% .
The person making $70,000 goes from paying an actual 19.77% of income ($13,840) to 18.3% of income ($12,810), a difference of only 1.47%
A person making $27,000 receives a higher tax cut as a percent of income than a person making $70,000. Actually it's about 150% as much. (2.22 / 1.47). So the $27,000 income person gets 1 and 1/2 times as much tax relief as the $70,000 person.
Neverthelessl, many, in my opinion uninformed people, still try to call this a tax cut for the rich.
It would be like someone who just bought a car for $10,000 and got a $500 rebate check, complaining because someone else who just bought another car for $20,000 got a $600 rebate.
Please note all figures are for illustrative purposes only. As everyone know, while the tax brackets are very straight forward, the tax deductions and credits make a HUGE difference in actual taxes paid. For example, a family earning $70,000 per year, with several children, day care, a mortgage on a $250,000 house, a mortgage on a vacation home etc, could easily wind up paying less in tax than say a retired couple making $50,000, but whose children are gone, whose house is paid for, and can't afford a vacation home at all. But let's leave all that for the debate board. That's another matter entirely.
This tax cut changes the tax RATES. Everything else remains the same. (For now.....lol)
)
