“You know, if you make over $300,000 a year, this tax cut means you get to buy a new Lexus. If you make $50,000 a year, you get to buy a muffler on your used car.”
—Tom Daschle, Senate Democratic Leader, February 5, 2001
This comment about President Bush’s tax cut proposal was the sound bite of the day. I saw it while walking a treadmill in the morning. I saw on the evening news. I heard it on radio news. I read it in the paper. It was inescapable.
It also got me thinking.
Could I buy a Lexus?
You should know that I am the owner of a 1994 Ford Explorer LTD (with Goodyear tires) who suffers occasional spasms of car lust. I will also confess that my wife and I share a joint income greater than $50,000 a year but less than $300,000 a year. A tax cut may not pay for an entire car but the muffler consolation prize is a sure thing.
Hence my visit to Sewell Lexus in downtown Dallas.
I looked at wonderful, shiny cars with buttery leather upholstery. I began to hunger for a tax cut that would buy a Lexus. The LS 430, their largest sedan, carried a sticker price of $61,164. The GS 300, a smaller sedan with some muscle, was priced at $47,678. The new IS300, their sporty competition for the BMW 3 series, could be driven away for $36,490. Scratch the options and it was in your garage for $30,995.
Whatever model you choose, a Lexus represents a lot of tax cut.
Gerald G. Jackson, the new vehicle sales manager at Sewell Lexus, was kind enough to give me a set of price lists to take home. This is important because some of the options packages have impressive price tags all by themselves. The most expensive is the “Ultra Luxury Package” for the LS430, some $12,505. More imaginable is the “Navigation/Mark Levinson Package” at $5,790 on the GS430. It includes goodies like 17 inch chrome wheels, a rear spoiler, wood and leather steering wheel, and audio that makes you remember how things sounded before your hearing was damaged at a Grateful Dead concert.
But I digress.
Our basic question is simple: How much Lexus can you buy with the tax cut?
Answer: It depends on your income. Think of the table below as a Tax Bill/Lexus Conversion Kit. In it, I have calculated the federal income taxes, at current rates and year 2000 brackets, on income levels from $50,000 to $300,000 for a couple that does not itemize their deductions.
You will note an odd fact: the tax bill methodically rises from $5,560 for the $50,000 couple (11.1 percent of income) to $87,918 for the $300,000 couple (29.3 percent of income). Like the optimistic boy at Christmas who receives a box of horse manure and therefore knows “there is a pony in there, somewhere,” the table tells me there’s a Lexus, or at least part of one, hidden in the tax bill.
The Tax Bill/Lexus Conversion Kit
|
Adj. Gross Income |
Federal Income Tax |
Marginal Tax Rate |
Average Tax Rate |
|
$50,000 |
$5,565 |
15.0 percent |
11.1 percent |
|
$75,000 |
$11,629 |
28.0 |
18.6 |
|
$100,000 |
$18,629 |
28.0 |
22.3 |
|
$150,000 |
$35,528 |
31.0 |
22.3 |
|
$200,000 |
$50,298 |
39.6 |
25.1 |
|
$250,000 |
$69,105 |
39.6 |
27.6 |
|
$300,000 |
$87,918 |
39.6 |
29.3 |
Source: Calculated using Tax Planner in Quicken 2000
The other thing the table tells me is that people who earn more money pay more taxes. A lot more taxes. Indeed, any scheme for a level tax cut would provide far more money for the top income earners than for the $50,000 income earners. If you cut taxes for the $300,000 earner by 10 percent, she’d save $8,792.
Even if you took the $50,000 earner off the tax rolls with a 100 percent tax cut, the $5,565 saving would be smaller than the $8,792 cut the top earner gets with a 10 percent cut. This is a fundamental fact of life: people who pay more taxes in the first place will get more dollars back in a tax cut.
Give the $50,000 earner a 100 percent tax cut and he still won’t have enough to buy the $5,790 “Navigation/Mark Levinson Package” on the GS430, let alone buy the cheapest Lexus. This will not happen because of nasty, mean spirited Republicans. It will happen because the $50,000 taxpayer pays less in taxes.
The $300,000 taxpayer currently pays $87,918 in taxes. This would require a 35 percent tax cut to buy the cheapest Lexus. In fact, the proposed tax cut would be a bit over $8,000 when it is fully phased in. That’s enough to lease a Lexus. It’s not enough to buy one.
So there’s no Lexus in my future.
But what about the mistake, the fact that Senator Daschle was flat out wrong about the $300,000 earner getting a Lexus sized tax cut?
Well, sources tell me that the Senator misspoke. While it takes an income just over $300,000 to be in the top one percent of all earners, the average income in the top 1 percent is $900,000. He meant to say that and he corrected his figures in another press conference later in the week in which a Lexus was used as a prop.
So lets get this straight. If a $300,000 couple can earn another $600,000 a year, they will pay an additional $198,000 in taxes (at 33 percent) which will be $39,600 less than they would have paid before the tax cut.
That’s one Lexus.
The government, meanwhile, gets another $198,000 in tax revenue, enough to buy a small Lexus fleet. Indeed, for every $100,000 increase in income, the government gets a new $33,000 Lexus.
Pit the muffler tax cuts against and Lexus tax cuts and no one will see the government driving away.
In a Lexus.
This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.
Photo:
(c) Scott Burns, 2022