After President Obama announced his plan to extend some of the Bush tax cuts for one year while allowing the cuts on higher incomes to expire yesterday, conservatives quickly revived the “class warfare” talking point they have used faithfully in tax debates before.
These claims, however, rely on a fundamental misunderstanding of America’s progressive tax system and its utilization of marginal tax rates. The Obama plan still maintains a tax cut for every single income earner, regardless of how much he or she makes. Every earner still receives the tax cut on income up to $250,000 — only after it passes that threshold will it be subject to a higher tax rate. Someone who makes $250,001, for instance, will pay the higher rate on exactly $1.
This chart from Citizens for Tax Justice illustrates how eliminating the tax cut for high earners would work under both Obama’s and the GOP’s plans:
The tax system works the same way for the small businesses that conservatives claim will face massive tax hikes under the Obama plan. Only after $250,000 in income will they pay a higher rate, and to truly notice the higher tax rates, a business would have to earn substantially more than $250,000 in a year — meaning it probably isn’t a small business in the first place. All told, the Joint Committee on Taxation estimates that only 3 percent of businesses would see an increase under the Obama plan, which actually restores competitive advantages to the nation’s entrepreneurs.