Study Looks at Tax Cut Lapse for Rich
By JACKIE CALMES
WASHINGTON — As debate heats up over President Obama’s proposal to let
the Bush tax cuts expire for the wealthy but to extend them for
everyone else, a nonpartisan Congressional analysis circulated on
Capitol Hill on Tuesday provides a look at the impact the plan would
have 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
That compares, however, with the roughly $100,000 average tax cut that
households with more than $1 million in income would receive under
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.
If the president gets his way, in 2011 the top two income tax rates —
now 33 percent and 35 percent — would revert to the levels before the
Bush administration, 36 percent and 39.6 percent, respectively. But
the four lower rates would remain 10 percent, 15 percent, 25 percent
and 28 percent. For some taxpayers earning up to $250,000, the top
marginal rate would remain 33 percent.
The tax-cut debate is shaping up as one of the hottest of the year and
will play out in the weeks before voters go to the polls to determine
which party controls Congress. Democrats want to extend the tax cuts
for all but the wealthy, while Republicans are fighting to maintain
them for everyone.
Most of the tax cuts that were a signature domestic initiative of
George W. Bush’s presidency carried an expiration date of Dec. 31,
2010, to limit the [estimated] potential revenue losses [making it
easier to get the tax cut through Congress]; supporters assumed that
they would be extended when the time came.
Extending them for the next 10 years would add about $3.8 trillion to
a growing national debt that is already the largest since World War
II. [AARRGH! it doesn't matter how large it is in absolute dollars;
you have to compare it to nominal GDP to correct for inflation and put
it into perspective (comparing it to the potential tax base).] About
$700 billion of that reflects the projected costs of tax cuts for
those in the top 2 percent of income-earners.
With the economy still weak, the issue of the tax cuts has led to an
economic debate between those who would end all or some of them to
reduce the projected debt and those who say raising taxes on the
wealthy could threaten the economic recovery.
For both parties, the dispute has become a defining one as they hone
campaign arguments heading toward November.
Speaking of Republicans at a fund-raiser in a wealthy community near
Dallas on Monday, Mr. Obama told Democratic donors, “What you see is a
governing philosophy on their part that basically comes down to ‘We’re
going to extend tax cuts for the wealthiest among us’ — folks who
don’t need those tax cuts and weren’t even asking for them, which
would cost $700 billion.”
For their part, Republicans do not emphasize the impact of extending
the tax cuts for wealthy individuals. Rather, they say Mr. Obama is
about to spring a big tax increase on many small-business owners who
file their taxes as individuals. Analyses from the Joint Committee on
Taxation and the Tax Policy Center, a nonpartisan research
organization, show that less than 3 percent of filers with
small-business income pay at the top two income tax rates, and many of
those are doctors and lawyers in partnerships.