Is the Stimulus Coming to Your House?

Maybe we can look forward to a lot of underground economic activity. A Black Market. A 65% marginal tax rate for middle-income people will encourage them to work less.

IMHO, what government ought to be pushing is for a special stimulus package for American citizens. This proposal would probably be less expensive than lending billions to banks and insurance companies which are only going to fail anyway.

So What's in the Stimulus for You? Nothing! Janet Novack


02.25.09, 06:00 PM EST
Forbes Magazine dated March 16, 2009 The new stimulus tax breaks are mostly capped for people with high incomes. Get ready for marginal rate madness!

The $787 billion stimulus includes temporary tax breaks for workers, college students and car and home buyers, but all are denied to higher-income folks. That's because of what's known as phaseouts--the long tradition of curtailing tax breaks as income rises.

Democrats had an excuse for denying the temporary tax cuts to rich folks: They're less likely to spend the extra cash and, anyway, President Barack Obama campaigned on tax cuts for couples earning up to $150,000. But phaseouts aren't just a Democratic game. For years, points out Clint Stretch, managing principal of tax policy at Deloitte Tax, politicians from both parties have been wooing voters with both special-purpose tax breaks and low "advertised rates." The result is--as the table shows--more than two dozen sneaky phaseouts, phase-ins and other provisions that can produce absurdly high marginal rates for some middle-income taxpayers.

Take an example of a single mother with an adjusted gross income of $75,000. She claims the standard deduction and has one high schooler and two kids in college. Under the stimulus package, she'll have her 2009 federal income tax bill chopped to $1,465 from $7,865 thanks to two $2,500 college credits, a $400 worker's stimulus credit and a $1,000 child credit. But if she takes a second job to help pay college bills and her AGI rises to $90,000, she gets no college credits and only $100 of the worker's credit and $250 of the child credit, for a total tax bill of $11,265. That makes the tax rate on the $15,000 of extra earnings 65%--not counting the 7.65% employee share of Social Security and Medicare or any state and local income taxes.

If this hardworking parent knew what was about to hit her, she might be able to reduce her 2009 AGI, say, by increasing her pretax contribution to her 401(k). But with three kids and two jobs, she's likely too busy to figure this out. "With all these phaseouts, planning is pretty hard," says Mark Luscombe, principal federal tax analyst at Wolters Kluwer (other-otc: WTKWY.PK - news - people )'s CCH business.

Also keeping tax guide publishers busy is Washington's fluid definition of high income. Some middle-class goodies begin phasing out at $100,000 for a couple, some at $150,000, some at $250,000. The sky's the limit for the AGI of someone claiming a heat pump credit, just in case Warren Buffett wants to put one in.

Going, Going …

More than two dozen tax breaks are phased out as income rises. Here's the income level at which a married couple filing jointly starts to lose different tax goodies in 2009.


Josie06 Josie06
56-60, F
1 Response Mar 8, 2009

high taxes are going to hit everyone who actually pays taxes. high inflation is going to hit us and basics such as bread and milk are going to be off the charts. Gas has already started to rise again. it is over 2.00 a gal here and has risen almost everyday for the past week.