This week, the Congressional Joint Committee on Taxation released an analysis of what would happen to the tax code if the Republican proposal to extend all of the Bush tax cuts were adopted. The tax cuts are scheduled to expire at the end of the year, and the Obama administration has proposed renewing only those for the lower- and middle-class.
“You will find Republicans resisting very strongly any bill that allows taxes to be raised on any segment of Americans today,” said Sen. Jon Kyl (R-AZ), while Rep. Mike Pence (R-IN) has said the House GOP will throw “everything we’ve got” into preserving the tax cuts for the wealthy. And too many Democrats — like Sens. Evan Bayh (D-IN) and Kent Conrad (D-ND) — have been cowed into expressing a willingness to extend the tax cuts temporarily for a year or two.
According to the JCT analysis, extending the cuts for the wealthy — which affect two percent of the population — for just one year will cost $36 billion. Obama’s plan, meanwhile, really focuses the tax increase at the very top of the income scale:
The biggest burden would fall on the 608,000 taxpayers who make between $500,000 and $1 million and the 315,000 who earn more than $1 million; the first group would pay $6.5 billion more, or an average of almost $10,000, and the second group would owe $31 billion more, or almost $100,000 on average, the analysis said.
That may seem like a lot, but even under Obama’s plan, the very rich will be paying less in taxes than they did in 2001, since they would be paying a lower marginal rate on their first $250,000 in income. As the New York Times noted, “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.” For those earning between $250,000 and $500,000, meanwhile, the increase is “relatively low,” said Roberton Williams, an economist with the Urban Institute. “It’s less than 1 percent.”
So Obama’s plan has taxpayers still paying less than they were at the beginning of the decade, while adding $36 billion less to the deficit than the GOP’s preferred policy outcome. As Michael Tomasky put it, the Republican plan is simply “another stroll down the supply-side hall of mirrors”:
For the Republicans, now that we’re talking about tax cuts for the wealthy, that isn’t enough, the deficit must be made even worse! … This is their agenda. If it’s for millionaires, it’s good. Period. It’s never been quite this naked, but there it is.
It’s worth remembering that income inequality is currently the worst it has been since the 1920s. The richest 1 percent of households now receive nearly 25 percent of the country’s income, after earning less than 10 percent in the 1970s.