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URL:  https://boards.fool.com/the-problem-with-the-quotrebatequot-is-that-15156852.aspx

Subject:  Re: Not everyone gets a tax rebate Date:  6/12/2001  2:34 PM
Author:  synchronicity Number:  153048 of 910563

The problem with the "rebate" is that it is for 2001 taxes, but is based on what was payed in 2000. So for the family that owed almost no taxes last year because of, say, the wife was out of work, and the twins were still young enough to be dependents; will get no rebate, even though the wife is now making $50000, and the twins have fled the nest.

On the flip side, the guy who retired in February will still get the rebate, even though he will not have to pay taxes this year.


Bingo. That's the big problem with the "rebate".

The simple solution would have been to put in the 10% bracket on the first 6K (for single, non-HoH) or 12K (for married) taxable income, have companies adjust wage withholding (starting 7/1 or whenever) to reflect this, and simply have many of us get a refund when we filed our 2001 taxes. Unfortunately, for political reasons the decision was made to issue these "rebate checks".

FWIW, the amounts ($300 or $600) reflect the 5% differential on the first 6K or 12K of taxable income. (Note that there is a difference between taxable income and "gross" income. Taxable income is income less deductions and exemptions. If you're married, the couple generally must earn almost 25K to have 12K in taxable income (24950 less 7,350 standard deduction less 5,800 in personal exemptions, using the numbers from 2000. Obviously, if you itemize deductions and/or have children, your gross income will have to be higher to have 12K in taxable income)

Note that I am not taking a position on the merits of the overall tax package or the specifics of any changes in the tax law. I am simply stating that the mechanics of implementing, in effect, the 10% bracket change for 2001 (the 10% change is retroactive to 1/1/01, hence the checks)leave much to be desired.

-synchronicity

(who doesn't play one at the Fool, but in "real life" is a tax guy)
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