The deal left a sour taste in the mouths of many Democrats who did not want to see the tax cuts extended for wealthy people making more than $1 million per year, and in the mouths of some Republicans who promised not to vote for any new spending that would add to America's swelling debt.
Why do we pay taxes?
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taxes pay for Medicare, Medicaid and other services for the poor. |
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Taxes are money that everyone pays to state and federal governments. There are different types of taxes including sales tax, applied to things you buy; property tax on a home or car; and estate taxes on inheritance from someone who has died.
The Internal Revenue Service (IRS), a bureau of the Department of the Treasury, is responsible for collecting taxes. If someone refuses to pay, they face civil penalties, such as fines, or criminal penalties, such as jail time.
The money provided by taxes is used for a wide variety of government functions such as roadways, educational systems, health care, public transportation and waste management.
One of the most common forms of tax is income tax paid on the money you earn. The amount of tax you pay depends on the size of your income. The IRS has designed tax brackets so that people with bigger incomes pay a higher percentage than people with smaller incomes.
For example:
- If you make $5,000 a year, you are required to pay income taxes of 10 percent. 5,000 X .10 = $500
- If you make $500,000, you are required to pay 35 percent. 500,000 X .35 = $175,000
What are the Bush-era tax cuts?
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| The Bush tax cuts were passed by Congress in 2001 and 2003 and put in place through the end of the decade. As of December 31, 2010 these tax cuts will expire | |
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In 2001, George W. Bush took office and there was more money coming in through taxes than the government was spending. At the same time, the economy was stalling. So President Bush worked on a law that would give Americans more money in their pockets to spend, and therefore grow the economy. The law lowered all tax brackets by 3 percent.
Simplified example:
Income |
Income Tax in 2000 |
Income Tax in 2003 |
Savings |
$10,000 |
$750 |
$500 |
$250 |
$500,000 |
$195,000 |
$175,000 |
$20,000 |
But those tax cuts were set to expire on December 31, 2010. If Congress had not passed a new law, everyone's taxes would have gone up. A family making $10,000 would have to pay $250 more, and a family making $500,000 would have to pay $20,000 more.
Tax cuts for all or for some?
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| President Obama speaks during a press conference at the White House about his tax deal. |
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Many Democrats in Congress wanted to pay for the extension of tax cuts for middle-class Americans by letting the tax cut for wealthy Americans expire. They argued that families making $1 million do not need an extra $40,000, but a family making $10,000 really needs an extra $250.
But Republicans countered that in this time of economic problems, it would be a mistake to raise anyone's taxes. They argued that the tax increase would affect struggling small businesses that make over $250,000.
The Congressional Budget Office (CBO) estimates that extending the tax cuts for all Americans from 2011-2020 will add $3.3 trillion to the national debt.
Politicians compromise ideals for action
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| Tax cut deal passes in late-night vote, 277-148. |
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In 2008 President Obama campaigned on a promise to repeal the Bush-era tax cuts that benefit the wealthiest 2 percent of Americans. He proposed extending tax cuts for families earning less than $250,000.
After months of debates and a compromise between President Obama and congressional leaders, all the Bush tax cuts will be extended for two years, unemployment benefits will be extended for 13 months, and the estate tax will be lowered. This plan will cost an estimated $858 billion.
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Joplin was able to rise from the ashes because of help from everyone. And I am eternally grateful to anyone who made that possible.
