How Does a Broad Tax Cut Affect You?

During this election, voters have been presented with two different tax cut plans. One would reduce everyone’s tax burden, and the other would only give tax relief to a select few.

CSE supports a flat tax as a way of making the tax code fair, flat, and honest. One of these two tax cut plans would move us in that direction, the other would add pages to an already-complex IRS code and require more IRS agents to enforce it.

Unfortunately, politicians often make simple things sound complicated and vice versa. The effects of an across the board tax cut can be easily twisted, depending upon the message the speaker wants to convey to his audience.

The following is a simple explanation of how a broad tax cut affects the poor, the middle class, and the wealthy. Its author is unknown, but it is circling on the Internet, and came to our attention this morning.

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Lets say you have three people:

Sam Poor representing the poor people in America.

John Middle representing the middle class in America and

Paul High representing the wealthy in America — the 1% Gore kept referring to during the debate.

Now let’s suppose that Sam Poor earns 10.00 a year.

John Middle earns 100.00 a year.

And Paul High earns 1000.00 a year.

Sam Poor pays no taxes because he only earned 10.00 which is below the taxable earnings.

John Middle paid 15.00 in taxes (15% of his 100.00).

Paul High paid 300.00 in taxes (30 % of his 1000.00).

Let’s say candidate George Fair has a tax cut plan to cut taxes for the American people by 5% across the board (which is basically what Bush plans to do). Then here is what would happen:

Sam Poor would get no money Back — because he paid no money in and when I was in school 5% of 0 was 0.

John Middle would get a credit of 5.00. He would now pay 10.00 in taxes instead of 15.00.

Paul High would get a credit of 50.00. He would now pay 250.00 in taxes instead of 300.00.

Now that seems pretty fair don’t you think? Everybody got a 5% tax cut.

Here’s where the “fuzzy math” comes in. I can make these numbers say just about anything I want. For example I could say:

Sam Poor gets no benefit what so ever from this tax cut.

And that is true.

Paul High is getting 10 times more money in tax cuts than John Middle.

And that is true.

John Middle gets his taxes reduced by over 30% while Paul High only gets his taxes reduced by 16%. So John Middle gets over 2 times the benefit from this tax cut than Paul High does.

And that is true.

So you see, Using true mathematical statistics I can make this look unfair for Sam Poor (as in 1 above) or unfair for John Middle (as in 2 above) or unfair for Paul High (as in 3 above).

That my friends is “fuzzy math”. So the next time you hear Al Gore touting Bush’s tax cut plan as “tax cuts for the wealthy” remember this example and understand that he is trying to mislead the American people by quoting numbers.