Friday, November 9, 2007

Democrats trying to cut taxes, Republicans saying no!

From WaPo:

"WASHINGTON -- House Democrats on Friday pushed through an $80 billion bill to block the spread of a dreaded tax on middle-income people. The White House and Republicans, protesting tax increases in the bill affecting mainly investment fund managers, maintained that it would never become law."

Here is what is happening. The Democrats want to make sure that Alternative Minimum Tax (AMT) does not get assessed against the middle class. AMT was never intended to apply to the middle class, but since it was not indexed correctly, when the bill was originally passed, it is beginning to affect average Americans in large numbers.

The Democrats, seeing the profligate spending perpetuated by the Republicans over the past six years, decided to institute "pay as you go" rules when they took over Congress last year. "Pay as you go" means that if Congress cuts taxes somewhere, they must raise the revenue (tax) somewhere else.

The place the Democrats want to raise the revenue is by closing a tax loop-hole for the super rich hedge fund managers. This loop-hole allows managers of hedge funds to count their fee income as long term capital gains (LTCG). The maximum LTCG tax is 15%. The Democrats argue that this fee income is a fee for service, not a long term return on the investment warrenting capital gains tax treatment at 15%. The Democrats are correct in this assessment.

The Republicans do not want the loop-hole closed. So, they are willing to let millions of middle Americans get their taxes raised to protect the very low tax brackets for the hedge fund managers making millions in income every year.

My question is this: how do you like it when a guy, making ten or twenty million a year, pays tax at 15% while you, making less than 100,000, pay tax at 25%?

The Democrats are doing a great job here and I hope the Republicans fail to hold or defeatup this bill.

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