When I first heard about the proposal to reduce the business tax rate “by 10 percent” when this was intended to report a business tax change from 35 percent to 25 percent, I started writing letters to the offending journalists at some of the largest news organizations. Apparently I was not understood, because my correction was ignored by all.
You’re not thinking clearly if you think that this change is a “10% reduction” in business taxes.
For example, assume that $100 is taxable, and the rate is changing from 35% to 25%...
35% tax on $100 = $35.00
25% tax on $100 = $25.00
$10 tax saved = 29% of the $35 original tax
Thus, the total tax in dollars is fully 29% less than it was originally; therefore business in this example will not be saving just 10% but will actually be saving nearly 3-times as much, a very significant difference!
This is the math that should also be applied to such things as sales tax increases. These are often presented as a “half-percent increase” going from 8.0% to 8.5% but going from 8¢ per dollar to 8.5¢ per dollar paid in taxes is actually more than a 6% increase in taxes paid, NOT
0.5% as implied.
I have nothing against paying taxes, since I believe in paying for the goods and services needed for a functional society, but I do think we should understand the math, and should understand the magnitude of changes that are to be made. Would the average person agree to a ~30% tax cut for business as readily as they would agree to a 10% cut? Shouldn't we all clearly understand exactly what is being proposed?