There has been a lot of consternation recently regarding the Obama administration’s continuing commitment to allow the Bush tax cuts to expire for the wealthiest American households. House Democrats are pushing to leave “well-enough alone for now” — with Rep. Mike McMahon (D-NY) even saying that those making $250,000 per year are “barely making ends meet” — while Republicans are trying to convince the President to “back off the marginal rate tax hikes.”
But today the administration’s Council of Economic Advisers released its annual Economic Report of the President, which bolsters the case for allowing the cuts to expire. For instance, the report notes that “in recent years nearly half of all income — including both wages and salaries and nonlabor income — has gone to 10 percent of families. The top 1 percent of families now receive nearly 25 percent of income, up from less than 10 percent in the 1970s.”
And at the same time that more and more income has become concentrated at the top of the scale, tax rates on the highest earners have been falling.
In the 2010 fiscal year, the Bush tax cuts will actually give millionaires more in tax breaks than 90 percent of Americans will earn in income. So the result of all of this is “a compression in the tax burdens applied to taxpayers with different incomes — the difference between the average tax rates on high-income groups and those on middle-class households is narrower than at any other time in modern history.”
And it’s not as if the administration is proposing any sort of radical tax increase. The expiration — which is a part of current law, mind you — merely returns tax rates for the highest earners to the level at which they were in the 1990′s, which is still far below their historical level. If we want to seriously address long-term deficits, which we have to in order to keep the country in some semblance of fiscal shape, revenue increases have to be part of the equation, and it makes sense to both look to where the money is and to address historic levels of income inequality and a shifting tax burden.