Wealthy Still Get Tax Cut Under Obama Proposal On Bush Tax Cuts

by Sandi Behrns

When Congress returns from the August recess, the fight over the future of the Bush Tax Cuts will really heat up. Republican rhetoric labels this as “the largest tax hike in history,” but the truth is that a Republican-led Congress wrote the law to expire in 2011. Democrats point to this fact and say that they are simply allowing the law to unfold as written by the GOP.  That’s not really the case, either. When the GOP passed the cuts, they were constrained by the limits of the reconciliation process they used to do so, and therefore couldn’t have the cuts extend beyond 10 years. However, they never had any intention of allowing the rates to reset; their plan was always to do exactly what they are doing now: paint it as a tax hike and brow-beat nervous Democrats into extending the cuts.

The problem for the GOP is that while the Bush cuts did give a tax break to the middle class, it did not escape the public’s notice that the vast bulk of benefit in the cuts flows to the very wealthiest.  Democrats have always opposed hand-outs to the rich, not the middle class. There is no impetus, let alone political will, for the Democrats to allow the law to lapse as written. President Obama’s proposal is not to end the tax cuts for everyone, but rather, to allow them to expire for taxpayers making over $200,000 per year individually or $250,000 jointly, while extending the cuts for everyone else.

A new nonpartisan analysis being circulated on the Hill yesterday takes a closer look at the impact of the plan on high income taxpayers:

Given the progressive nature of the federal income tax system, in which tax rates increase with income, even the richest households would continue to pay the four lower rates on up to the first $250,000 of their income, under the approach being pushed by Mr. Obama and Democratic leaders in Congress.

The president has vowed to extend the tax cuts for individuals with less than $200,000 in annual taxable income and couples with less than $250,000 — about 98 percent of American households. About 315,000 households report adjusted gross income of $1 million or more.

Taxpayers with income of more than $1 million for 2011 would still receive on average a tax cut of about $6,300 compared with what they would have paid under rates in effect until 2001, according to the analysis, which was prepared by the Joint Committee on Taxation at the request of the Democratic majority on the House Ways and Means Committee.

That compares, however, with the roughly $100,000 average tax cut that households with more than $1 million in income would receive under current rates.

Filers with taxable income of $500,000 to $1 million would still get on average a tax cut of $6,700 compared with pre-2001 rates, according to the data from the tax analysts. But that compares with roughly $17,500 if the top Bush tax rates were maintained.

So the very wealthiest will take a hit, but those closer to the $250,000 threshold don’t have much to worry about. That destroys the Republican faux-concern for small businesses, á la Joe the Plumber’s imaginary business from the 2008 election season.  No matter, the GOP has signaled a willingness to oppose the extension of cuts for the middle class if the cuts for the rich aren’t preserved. To make matters worse, there are centrist Democrats making noise that they want to extend the entire package as well. It is an election year, after all, but these politicians would do well to take a look at the results of a recent Pew poll which found that only 30% of the public wants to see all the Bush cuts in place, while 58% want to see either all cuts or at least those for the wealthy repealed. It is also worth noting, from the chart at right, that these numbers have not significantly changed over time. The Bush tax cuts have never been very popular.

By: Sandi Behrns

Sandi Behrns is a noted policy nerd, new media & web developer, and consultant to progressive organizations and campaigns. She is a senior contributor to Liberaland, and the Executive Editor of Progressive Congress News.