A Nov. 18 Maine Voices column (“Not all high incomes are equal”) incorrectly described the impact of the proposal to let the Bush tax cuts expire for taxpayers with income in excess of $250,000, now being debated in Congress.

The author, Bill Stauffer, calculates the impact on a business with $300,000 of income as 4.6 percent, or $13,800.

This calculation contains several errors. First, the increased tax rates only apply to taxable income in excess of $250,000. There would be no increase on the first $250,000. Second, the business income is reduced by personal exemptions and itemized deductions to determine taxable income.

For a family of four, personal exemptions are $14,600. A mortgage of $300,000 at 5 percent yields an itemized deduction of $15,000. Other itemized deductions are state and local income and property taxes and charitable deductions.

For a family in this income bracket, it is possible that deductions and exemptions exceed $50,000, in which case the tax increase would be zero.

The third error is that the increase in the tax rate would be 3 percent, not 4.6 percent. The 4.6 percent increase, from 35 percent to 39.6 percent, would only apply to taxable income amounts in excess of $374,000, according to the tax tables for 2010.

To summarize, the increased tax for the business described in the column would be the income of $300,000, reduced by $250,000 for which taxes aren’t increased, further reduced by exemptions and deductions.

The remaining balance, if any, is then multiplied by 3 percent, not 4.6 percent. The actual impact is probably several hundred dollars, not $13,800. If the family pays alternative minimum tax, the impact is more, but still far less than $13,800.

The expiration of the Bush tax cuts on just highest incomes would represent a meaningful down payment toward reducing the budget deficits brought on by Bush’s reckless tax cuts, with no impact on most Mainers.

 

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