April 18, 2006
Hello, everyone! Thanks for participating in Ask the White House today. I always enjoy these e-conversations, but I know that this week isnt the most enjoyable time of year for taxpayers. Americans dont like Tax Day, and they dont like it even more when taxes are too high. I think thats normal, its part of our national character. The good news is that Tax Day hasnt been quite as gloomy since the Presidents tax relief took effect. Lower taxes have meant more bearable Tax Days. I hope we can talk about that a little later today; for now, lets get started.
Gary, from Houston writes:
The President says that dropping the marginal tax rate for individuals
spurs economic group for small business because of S-corp and
partnership status. To take the "class warfare" issue out of politics,
why doesn't the President offer a different tax rate on earnings of
S-corps, partnerships, and unincorporated entities? We do it on capital
gains and dividends. Why not on business earnings?
Hi, Gary. Thanks for this interesting question. We agree that its important to have a low rate in dividends and capital gains because we need to encourage savings and investment in our economy. By having low rates on dividends and capital gains, we encourage the kind of investment that leads to in economic growth, job creation and personal savings, and, ultimately, higher living standards for all Americans.
Your question on at what rate small business income should taxed is an interesting one, and one that this Administration has given particular attention to. I think most people dont realize that about 35 percent of all taxes on business income is actually collected from owners of predominately small businesses organized as pass-through entities, such as the S corporations and partnerships you mention. It is, in part, because of the fact that most small business income is subject to the individual income tax, not the corporate income tax, that the President lowered the individual tax rates for most Americans. Keeping the top rate down is particularly helpful to small-business owners.
On the other hand, we think that the income owners receive from these pass-through entities should generally be taxed similar to wages both are earnings. Keeping marginal tax rates low for all Americans, including small-business owners who are an important source of innovation, risk-taking and job creation (two-thirds of new jobs are created by small firms), is a very important part of encouraging economic growth.
Stoomzee, from Northport, Long Island, NY
Could Income Taxes be calculated and collected in real-time, starting on
a monthly basis, then weekly, and finally every day (similar to State
Sales Tax). This would result in a much more predictable, progressive
outlook pattern, and continuously help stabilize our economy, and the
economies of the world, which fundamentally act upon all economic data,
as it is released to the general public.
A fascinating question from Long Island! In some ways, our current tax system does collect taxes on a real-time basis from many Americans. For example, our wages are subject to tax withholding. The taxes that you see withheld on your paycheck are being remitted, by your employer, to the government as you earn your wages. For many wage-earners, it is as simple as that: they, in effect, already pay their taxes on an almost real-time basis.
Our tax system overall, however, generally taxes more than just an persons wages and allows for a variety of deductions, exemptions and credits, which has led to the use of time frames such as a year. Nonwage income and deductions may come at different times of a year. For example, you may give a deductible gift to charity three times a year far less frequently than you receive a paycheck but that deduction still needs to be figured into your net taxable income at the end of the year.
As another example, individuals with a small business may receive income and incur expenses at different times, so that the amount to be taxed -- the net between income and expensese -- is not known until the end of a specified time period, such as a year.
In short, some aspects of taxes can be calculated on a real-time basis, but, with our current tax system, others need a time frame for measurement.
A simpler tax system with more uniform treatment of income and deductions could lend itself to more real-time tax collection for many Americans. The President is interested reforming the tax code to make it simpler and more fair, and one of the many possible configurations of the tax code might involve an increased emphasis on real-time tax collection. How overall tax reform might take shape, however, is the subject of an ongoing discussion in government and across the nation.
dominick, from niagara falls,ny
It is time to give the working poor and middle class a serious tax
break. how about doing something GREAT and eliminate all federal income
withholding tax on us citizens earning 30,000 and under. thanks alot.
Hi, Dominick. I share your concern about fair taxation; thanks for this question. President Bush has worked hard with Congress to get legislation enacted to reduce the tax burden on all families who pay taxes, including the working poor and the middle class. During his first term, Congress enacted three tax acts containing tax relief for Americas families. Low and middle-income families have especially benefited from the creation of a new 10-percent-rate bracket and the expansion of the child tax credit to $1,000. These tax cuts reduce the amount of taxes paid both throughout the year through withholding and at the end of year when taxpayers file returns.
Over 5 million taxpayers, including 4 million taxpayers with children, will have their income tax liability completely eliminated in 2006 due to the tax acts enacted during the Presidents first term. Most of these taxpayers have income under $50,000.
Also, it is important to note that our current tax system is already quite progressive with those with more income paying a higher fraction of individual income taxes. In fact, the bottom half of Americans ranked by income pay 4 percent of individual income taxes, while the top 50 percent pay the remaining 96 percent. The top 5 percent pay over 50 percent of the individual income taxes.
Most low-income individuals and families already pay no income taxes and often receive a check back from the government. For example, a married couple with two children only begins to pay income taxes in 2006 when their income reaches $41,867 (or over twice the poverty level). Without the Presidents tax cuts, this family would have began to pay income taxes when their income reached $33,070. Many families with incomes below these levels receive money back from the federal government through the refundable child tax credit and the earned income tax credit. Both of these tax credits were expanded during President Bushs first term.
Moshe, from Miami Beach
What are the true chances that the President's tax cuts will be made
permanent? Especially before this upcoming midterm election? Thank you
for your dedicated service.
Thank you for your question, Moshe, and its certainly my pleasure to serve our country. The President and I have called on Congress to complete work on a legislative package to extend the President's tax relief for capital gains and dividends and provide AMT relief as soon as possible when they return from recess next week. Our economy is now doing very well, in large part, because of the tax relief provided over the past several years.
Failure to make the tax relief permanent would be the same thing as raising taxes, which could really damage the economy. In light of the facts, one wonders why anyone would want to change course now. From where I stand, and from where 5.1 million American workers with new jobs stand, the Presidents economic policies have been an unambiguous success. The underlying fundamentals of the economy are now very strong, tax revenues are at all-time highs and there is no good reason to change course.
Craig, from Long Island, NY
How do you come up with ideas for changes in the design of different
coins or bills. Do you have a design team, do you hire marketing firms,
what is the processThanks Craig
Thanks for this question, Craig! The production of our nations coins and currency is quite interesting. Generally speaking, Congress and the President authorize new designs for the Nations coinage and the United States Mint produces the coins. In 2004, the United States Mint launched the Artistic Infusion Program (AIP), forming a pool of artists (that includes the United States Mint sculptor/engravers) from across the country to bring creativity and originality to coin design. When the President and Congress authorize a new commemorative coin, a Congressional Gold Medal or a new image for a circulating coin, the AIP artists and sculptor/engravers may produce candidate designs for the United States Mint. The designs are presented to the Treasurys two citizen advisory panels, the Commission of Fine Arts (CFA) and the Citizens Coinage Advisory Committee (CCAC). These committees provide guidance to me, the Secretary of the Treasury, and I make the final decision. You can learn more about U.S. coin production at www.usmint.gov.
The design of any paper currency note is an integrated effort of the Department of the Treasury, the Federal Reserve, the Bureau of Engraving and Printing and the U.S. Secret Service - but like with coins, final decisions rest with me, as Treasury Secretary. The designers of the Bureau of Engraving and Printing work with a 12-member Interagency Currency Design Group (composed of representatives of the government agencies listed above). The Task Force considers the latest research and development on counterfeiting and security measures, the needs and preferences of the marketplace (from banks to ordinary citizens), and production issues. The Task Force then makes recommendations to the Advanced Counterfeit Deterrent (ACD) Steering Committee, composed of other representatives from the same agencies. Input from these committees is funneled back to the designers and designs are fine-tuned in an evolutionary process. I encourage you to read more about the production of paper currency at www.moneyfactory.gov.
John, from Santa Cruz, CA
Hello Mr. Snow. I know that right now we are in the midst of a budget
crisis. How will tax cuts decrease our deficit?
Thanks for bringing this important topic up, John. Reducing the deficit is very important, though I certainly would not say that our budget is in crisis. In fact, the deficit is low by historic standards.
The interesting thing about taxes is their ability to impact economic growth so lowering or increasing tax rates doesnt exactly correlate to lowering or increasing federal tax revenues. In fact, the Presidents lower tax rates helped create so much economic growth that tax revenues are higher today than before the tax cuts. Moreover, it is important to consider both federal tax receipts and spending in relation to the overall size of the economy. Importantly, the Presidents Budget places federal revenues on a trajectory that returns them to their historic average of 18 percent of GDP.
Current federal budget deficits are caused by taxes that are too low, but by government spending that is too high. We do, of course, need to bring our budget deficit down. Economic growth is helping to shrink the deficit by growing federal revenues. The Presidents prescription is for continued growth paired with tight spending restraint. We fully expect that the deficit will be reduced by one-half by 2009, when the President leaves office.
Another change that would be particularly helpful to this President and future Presidents is the line item veto. The power of the line-item veto would go a long way toward trimming budget fat. Thats why action by Congress on the Presidents proposal for a line-item veto is so important. To learn more about the Presidents proposal, please go to /news/releases/2006/03/20060306-7.html.
Jeff, from Ely, Nevada
How strong is the American economy right now compared to other
This is a terrific question, Jeff, I appreciate your asking. The American economy is growing faster than any other major industrialized nation in the world right now. With 3.5% growth in 2005 and over 5.2 million jobs created since 2003, the American economy is booming. And so, too, is the global economy: this year will be the fourth straight year where global growth has topped 4%, the first time that has happened since the early 1970s. But global growth is uneven, with the developing countries of Asia growing at nearly 9% while the countries of Europe that share the euro currency grew at only 1.3% last year. Together with my G7 colleagues (Japan, Canada, France, Germany, Italy, and the UK) I have made maximizing sustained global growth a priority.
Joseph, from Alpharetta, Georgia
PLEASE- PLEASE- PLEASE- Explain why the President will not seriously
address the Fair Tax, HR-25 to save the economic life of our country?
Why is it so scary to think of the end of the IRS, the end 16th
Amendment and the U.S.
Treasury taking in an annual amount of taxes that would support the
growth of our economy forever?
Joseph, I appreciate this question. There is no doubt that the tax system needs to be simpler and fairer. I have never encountered anyone that has told me, "Mr. Secretary, please leave that tax code exactly as it is; dont change a thing." With that it is also important to consider that reforming the tax code is very important and must be done right. Historically it only comes around every twenty years or so. At this time we must consider all options carefully and be sure that we are creating a more simple and fair tax system for all.
Judi, from New Hampshire
When is tax relief coming? I am a family of 4 and we are self-employed.
Contributing to society and helping others. When are we, the middle
class, going to receive some help? The amount of taxes my family has to
pay is criminal. Between heating costs rising, electrical costs, food,
housing, water and sewer rates; we are beiginning the spiral downward
financial battle to just keep our heads above water. Any relief on the
Thanks for your question, Judi I was in your home state today and I appreciate that the "Live Free or Die" motto is so evident in its citizens! Too much taxation feels unbearable for citizens of a country as wonderfully free as ours, and I believe that freedom from excessive taxation is fundamental to the American identity and way of life.
Providing tax relief has been key priority of this Administration. The federal income tax burden of a family of four with an income of $60,000 has been reduced by 39 percent by President Bushs tax relief, and I hope that you have been feeling the effects of that relief for a few years now. This tax relief has also helped to get the economy moving again, after running into some very substantial headwinds just a few years ago. A growing economy provides broad benefits to all Americans by creating jobs and opportunity, and increasing living standards.
Lower tax rates will only continue if Congress makes the Presidents tax relief permanent, and its very important that they do that soon as soon as possible when they return to Capitol Hill from recess.
The cost of energy also feels like a tax, I know, and thats why the Presidents economic agenda includes a dedication to increased conservation and innovation through advanced energy technology. I encourage you to read more about the President's plan for energy security.
Mary, from New Jersey
I am 27 years old and currently in graduate school. I've been filing my
own taxes for five years now, and it seems like the tax forms get more
and more complex each year with the number of exemptions and deductions
I have to wade through and consider. What are you doing to simplify the
tax code so that ordinary Americans can file their own taxes without
outside help (or a degree in accounting)? Thanks.
Thanks for this great question, Mary; you are expressing the sentiment of most American taxpayers on Tax Day, and the President and I appreciate that. As I told Joseph earlier, there is no doubt that the tax system needs to be simpler and fairer. Thats why the President formed a panel to study the current code and come up with some suggestions as to how we could make the tax code better. The panel did outstanding work (see their website: www.taxreformpanel.gov ), the kind of work necessary to start the national discussion. Reform of the code is so important and the opportunity to really improve it only comes around every twenty years or so, so we want to be sure that we get it right. So at this time we must consider all options carefully and be sure that we are creating a more simple and fair tax system for all. At the Treasury Department we are quite busy working on tax reform, carefully considering the options provided by the Tax Panel. When we have finished our work, Ill be sending the President our recommendations for how best to improve our tax system.
Colin, from Seal Beach, CA
Secretary Snow--I seriously doubt this will be selected, but why not
close the corporate tax loopholes to stregthen the economy even more so?
These billions, alomst trillions of dollars could surely do something
more productive than tax breaks. Thanks for your time.
Tax relief and simplification, both for individuals and business, are critical to sustaining U.S. economic strength. Recently, with the tax relief that the President signed into law in May 2003, we have been able to see just how much tax relief can make a difference. Lower tax rates increase the after-tax reward to work and saving, and can spur businesses to invest more and create jobs more than 5.1 million -- which in turn has created more wealth and increased the livings standards for Americans. A growing economy also means more tax revenues, which we have also seen. In fact, federal tax revenues are now at their highest level ever.
Thomas, from California writes:
The Reagan era left a huge budget deficit, and so now has Bush. When do
you estimate that the debt will be paid off? Will the U.S. government be
able to honor its commitments to the millions of Americans who have
contributed to Social Security through payroll taxes?
Hi, Thomas; thanks for joining the discussion today! Ive mentioned this in a previous answer, but want to be very clear: Fiscal discipline, combined with economic growth, is the correct path to deficit reduction, period. Our government does, of course, face economic demands that are exceptional right now, from fighting the war on terror to helping the victims of devastating hurricanes put their lives back together. These are costly events that lead to unwelcome, brief deficits. They should be regarded as temporary as they are entirely surmountable with continued economic strength and spending restraint in the areas where it is possible and appropriate. The Presidents policies of economic growth and spending restraint, will keep us on track to meet the his steadfast goal of cutting the deficit in half by 2009.
And I share your concern about the governments ability to meet its commitment to future Social Security beneficiaries. As demographics change and the ratio of workers to retirees decreases, we face an extremely serious long-term problem. Thats why the President has called on the country and the Congress to face the tough facts and save the system for future generations. I encourage you to learn more about the President's leadership on Social Security.
Dan, from Garrett Park MD
Mr Snow. what are you going to do about the AMT. I help some of my
friends do tax returns. They are all upper middle class and we are all
getting hit by the AMT. We don't benefit from Bush's tax cut. We all
vote Republican. This has to be fixed. It's un-American. What are you
doing to fix it?
Dan, I share your concerns about the Alternative Minimum Tax (AMT). The AMT was created in 1969 to ensure that a few high-income taxpayers paid at least a minimum amount of tax. This tax is a good example of a government program that has gone astray. In tax year 2005, about 4 million taxpayers were likely affected by the AMT. By 2016, unless the AMT is addressed, some 56 million or nearly one half of all taxpayers who pay income tax will be affected by the AMT.
Fundamentally, the root of the AMT problem is the fact that when the regular tax was indexed for inflation in the early 1980s, the AMT was not. Due to the simple power of compounding and arithmetic, over the years the AMT increasingly affects more and more taxpayers by denying certain deductions. Unless Congress takes action, in 2006 the current AMT exemption which protects many from this punishing tax will fall, causing even more taxpayers to be subject to the AMT, perhaps as many as 22 million according to our estimates.
We believe that the AMT imposes substantial burdens upon taxpayers who are not the originally intended targets of the tax. Allowing the higher AMT exemption levels and non-refundable personal credits to be used for at least an additional year would address the AMT problem in the near term . Thats why the Administration has proposed to congress to continue the higher AMT exemption levels and the use of non-refundable personal credits through 2006.
The bottom line on AMT for the long-term: A permanent solution to the AMT problem is needed, but because of the complexity of our income tax system, the interactions between the AMT and many other provisions of the ordinary income tax, and the large amount of revenue from the AMT, this permanent fix can only be accomplished by addressing the longer term AMT problem as part of a more fundamental reform of our tax system.
Cliff, from Brimfield, Ohio
Secrectary Snow: What affect do you think the high price of gasoline
will have on the spending habits of most Americans and how will it
affect the economy? I hear people are already altering their travel
plans for the summer. Thank You
Thanks for sending this important question, Cliff. The American economy is doing really well right now, so although there can be no doubt that high energy prices act like a tax on individuals, families and businesses, Im not too worried about prices doing major damage to the economy overall. A healthy economy can absorb some stressors like high gas prices. That said, energy prices and availability is a very important issue for our economy over the long term, and thats why the President is dedicated to reducing Americas dependence on fossil fuels. As he said in his State of the Union Address, Keeping America competitive requires affordable energy. And here we have a serious problem: America is addicted to oil, which is often imported from unstable parts of the world. The best way to break this addiction is through technology. ... By applying the talent and technology of America, this country can dramatically improve our environment, move beyond a petroleum-based economy, and make our dependence on Middle Eastern oil a thing of the past." I encourage you to read more about the President's Advanced Energy Initiative.
Michael, from Powell, TN
I appreciated getting my tax refund, and thank the President for it. Why
are married people who file together penalized in taxes? THank you.
Thank you for your question, Michael. Marriage penalties arise if a couple owes more income taxes filing their tax return jointly than if they were unmarried and if each spouse filed a separate return. This Administration has sought to address this problem with the tax code, and the Presidents tax cuts during his first term have significantly reduced marriage penalties. Both the standard deduction and the width of the 15-percent rate bracket for joint filers were increased to twice the amounts for single filers. These changes had the effect of placing individuals in the same place from a tax perspective whether they file jointly or whether they were unmarried and each spouse filed a separate return. Low-income married filers also benefited from an expansion of the earned income tax credit. Finally, flattening the tax rate structure also helped reduce marriage penalties.
Despite these substantial improvements, some couples will continue to experience marriage penalties under current law. Marriage penalties persist due to other provisions in the tax code. For example, the widths of the higher tax rate brackets for joint filers are less than double the widths for unmarried filers, thereby generating marriage penalties. Similarly, other provisions, such as the alternative minimum tax (AMT), give rise to marriage penalties because the income thresholds for joint filers are less than twice the corresponding amounts for unmarried filers.
As Ive already discussed, the Administration is currently looking at ways to reform the tax system overall, including options that would further reduce marriage penalties.
Great chat today, everyone! Im sure none of us are sorry to say goodbye to Tax Day for another year. With an involved public and an accountable Congress, we can hope for even less burdensome Tax Days in the future. Thanks for joining I look forward to our next conversation on Ask the White House.