Yes, I know Denys, they are not from George even so every says different


http://www.msnbc.msn.com/id/6308302/site/newsweek/

Catch-Up Tax Math
Some Republicans were aghast by the low taxes paid by Teresa Heinz Kerry in
2003. But the reason she paid so little? President Bush’s controversial tax
cut

By Allan Sloan
Updated: 9:49 a.m. ET Oct. 25, 2004Oct. 22 - Supporters of George W. Bush
have spent a good part of this week throwing rotten tomatoes at Teresa
Heinz Kerry. Or, more precisely, at her 2003 tax return, which the Kerry
campaign released late last Friday, the traditional day and time for
disseminating uncomfortable news.

Critics proclaimed themselves aghast at what they saw. Heinz Kerry’s
husband wants to restore the tax cuts that Bush has made to the top two
brackets, they said, so how can she face herself in the mirror when she
paid taxes of only 12.4 percent on her income? “She is paying a lower
average rate than nearly all middle-class taxpayers paid in 2001,” huffed
The Wall Street Journal’s editorial page, the high priests of all-tax-cuts-
all-the-time orthodoxy. The Journal, so indignant when it considers tax
rates too high (which is almost always), waxed wroth because Heinz Kerry
paid too little. The amen chorus sang from the same hymnbook.

Given this food fight, some catch-up tax math is in order. Look at Heinz
Kerry’s tax return and you see that a major reason she paid so little tax
is … President Bush—specifically, his controversial tax cut forced through
Congress last year, reducing the maximum rate on dividends to 15 percent
from 35. Had the top rate on dividends remained at 35 percent, calculate
the tax mavens at financial publisher CCH, who reviewed her tax return for
NEWSWEEK, Heinz Kerry would have paid around $918,000 in taxes rather than
$628,000. Without that cut—which her husband opposed—Heinz Kerry’s tax
would have been almost 50 percent higher.

(For reasons involving the alternative minimum tax (AMT), CCH calculates
that Heinz Kerry’s tax under her husband’s proposed top bracket of 39.6
percent would be the same as it would have been at 35 percent. Her higher
regular tax would be offset by a reduced AMT. I don’t pretend to understand
why this is the case—but it is. )

Back to the main event. Absent Bush’s dividend-tax cut, Heinz Kerry’s
overall tax rate would have been around 18 percent—less embarrassing than
12, but still way below what your typical middle-income-salary type pays if
you include Social Security and Medicare, which total 15.3 percent of the
first $87,900 of salary this year, 2.9 percent of everything above that. I
consider Medicare and Social Security, which are taxes on income, part of
the income-tax burden, but the tax-cut crowd generally doesn’t. Except in
this case. Her salary income was a rounding error relative to her
investment income—and you don’t pay Social Security and Medicare taxes on
investment income.

Now, I’m no fan of people and companies going to great lengths to avoid
paying taxes. But in this return, Heinz Kerry doesn’t seem to be playing
any significant tax games. More than half her income is from tax-exempt
bonds, one of the few tax-avoidance tools available to the masses as well
as to the well-lawyered. Anyone with a grand or three can buy into a tax-
free money-market fund or a tax-exempt bond fund.

Given that Heinz Kerry’s return shows that she’s paying $326,000 of
alternative minimum tax, more than half her total tax burden, it doesn’t
look like her accountant engaged in a whole lot of tax avoidance. Heinz
Kerry didn’t release her kids’ tax returns or those of the family trust
funds, so there may be heavy-duty tax games going on there. But not here.
And now, if you’ll indulge me, an example of how lower taxes cut both ways.
The dividend-rate cut that makes Heinz Kerry a nifty target for the Bushies
is also helping pay for the anti-Bush efforts of Peter B. Lewis, who’s
given more money to defeat Bush than even billionaire George Soros.

This gets a tad complicated, so please bear with me. Lewis is the chairman
of Progressive, the auto-insurance company, and owns more than a billion
dollars of its stock. Earlier this month, Lewis got $96.8 million by
selling some of his Progressive shares to the company, which was buying
back lots of stock from existing holders. Because Lewis’ proportionate
stake in the company increased as a result of the buyback, his $96.8
million is treated as a dividend, not as proceeds from selling stock.

Thus, Bush’s 20-point cut in dividend tax rates is saving Lewis a ton of
money—call it $19.4 million. According to the Center for Responsive
Politics, Lewis has given $18.9 million to anti-Bush organizations. In
other words, what Bush has saved Lewis on this one transaction covers
Lewis’ cost of battling Bush, with half a million bucks of walking-around
money left over.

You’ve got to love it. Bush’s tax cuts, which the Bushies bash Heinz Kerry
(and by extension her husband) for accepting, are financing Peter Lewis’s
attacks on Bush. This, fans, is an irony to relish.

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