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Tax cuts for the middle-class are also tax cuts for the rich

I think people are actually quite confused about how the tax cuts work. So here's Annie Lowrey*:

Pop quiz. Say you make a steady $250,001, every year. How many dollars of additional income tax will you pay if the Obama administration’s tax plan goes through? A thousand dollars? A few thousand? Nope. Three cents.

Here’s how it works. Your taxes below $250,000 remain the same. And on that excess $1, your income tax rate increases from 33 percent to 36 percent. For most earners making between $250,000 and $500,000 a year, the Obama plan would increase income tax liability by just a few hundred dollars — an average of $600, according to the Center for Economic and Policy Research’s Dean Baker.

Annie is comparing the Bush tax cuts to the Obama tax cuts. But if you compare the Obama tax cuts to a world without either set of tax cuts, you learn something interesting: The rich are still getting a big tax cut.

Obama's "tax cuts for the middle class" aren't actually tax cuts for the middle class. They're tax cuts on all family income up to $250,000. So if you make $300,000 a year, you're getting a tax cut on $250,000. That's a serious tax cut! That's why the graphs showing how different taxpayers make out under the Obama and Bush tax plans all show a tax cut for the rich under Obama's plan:

taxplanscompared.gif

Now, the tax cut for the rich is obviously much larger under Bush's plan, and rich people would prefer a big tax cut to a modest tax cut. But that doesn't change the facts of the situation: Under Obama's tax plan, everyone gets a tax cut, including families making more than $250,000 a year.

By Ezra Klein  | September 20, 2010; 12:36 PM ET
Categories:  Taxes  
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Comments

This is something I wish the White House had been talking about a lot much earlier in the process. It's also why I really liked someone's comment in an earlier post today arguing that we shouldn't be talking about tax cuts on people, but on income. Everyone's getting tax cuts under President Obama's plan; they're just not getting tax cuts on all of their money.

Posted by: MosBen | September 20, 2010 1:17 PM | Report abuse

By that chart, Professor Todd Henderson's additional tax burden under the Obama plan would be around $409 annually.

Maybe he won't have to fire his Mexican gardener or Polish maid after all....

Posted by: QuiteAlarmed | September 20, 2010 1:18 PM | Report abuse

The biggest flaw in the Democratic tax plan is that it's not bigger for the middle class. They should fatten up that Middle class tax cut, and make it clear that Republicans are supporting smaller tax cuts for the middle class while they want huge tax cuts for the rich.

It's politics. Have the Democrats ever heard of playing politics?

But no, the Democratic tax cuts for the middle class are almost identical. Barely distinguishable from the Republican plan. When there's a political gold mine, just waiting for the Democrats to start digging.

Posted by: Kevin_Willis | September 20, 2010 1:18 PM | Report abuse

Kevin, I'd be all for that sort of cynical political thinking if it were a temporary extension. Cut taxes on the middle class even more than Bush did, but only on a temporary basis to help spur on the recovery. Then phase the tax rates back up to normal over a three to five year period.

Posted by: MosBen | September 20, 2010 1:29 PM | Report abuse


What the libs can't understand is that the main reason most WORKING Americans stand with the rich in opposition to more taxes is that the government is no longer to be trusted with our money.

Once the cuts are repealed, bureaucrats can change the tax rate with no voter input. No one trusts the Feds any more.

The money the government wastes on special perks and special favors to special interest groups is mind boggling...I would rather see some billionaire entrepeneur sailing on his yacht that he pays for than seeing Charles Rangel enjoying cheating on taxes.

Posted by: jstratt2 | September 20, 2010 1:31 PM | Report abuse

Look, let's stop this nonsense of calling the prevention of a tax hike a 'tax cut'. People will look at their tax bills and see they are roughly the same as they were last year - from the viewpoint of your typical American, that isn't going to be considered a tax cut.

This is the same nonsense you hear surrounding a lot of public budget cuts, where the reduction of a scheduled 8% increase to a 3% increase is lamented as a 5% cut.

Posted by: justin84 | September 20, 2010 1:43 PM | Report abuse

I think you should show what the taxes paid would be under each plan, not what the savings would be. Sure, a $100,000 tax break looks huge next to the $6,000 break that President Obama is proposing. What is that taxpayer paying after the $100,000 reduction? Obama likes to say that at some point you've made enough money. I say, at some point you've paid enough taxes.

Posted by: NoVAHockey | September 20, 2010 2:12 PM | Report abuse

Ezra, Can you get your newspaper to publish this info?

Posted by: racheljl | September 20, 2010 2:36 PM | Report abuse

just heard a snippet on the radio from the President's Town hall today.

he's STILL not explaining it right. Mos Ben has it right. Explain it has everybody gets the cut up to $250k of their income and make sure people understand that and it'll go a long way.

Posted by: visionbrkr | September 20, 2010 2:41 PM | Report abuse

******The money the government wastes on special perks and special favors to special interest groups is mind boggling*******

No it's not. This is a myth. Discretionary spending as a whole is a modest portion of the budget. The entire tab for earmarks, for instance, is only about 1% of the budget.

If you want to slash the budget in a serious manner the only part of the discretionary budget capable of yielding major dollars is defense. Other than that you've got to go after entitlements.

Posted by: Jasper999 | September 20, 2010 2:44 PM | Report abuse

"Obama likes to say that at some point you've made enough money."

Has Obama proposed income caps?

"I say, at some point you've paid enough taxes."

You've paid enough taxes when the budget is balanced.

Posted by: dollarwatcher | September 20, 2010 2:52 PM | Report abuse

This logic drives me crazy. People argue tax cuts should have a bigger impact on the non-rich (the rich don't need them). Tax increases should be focused on the rich (the rich can afford it). What is the end result of this logic? Only the rich pay income taxes.

Yes, the marginal rates for high earners is low. But here is a news flash for you, the effective rates for ALL earners are low. 40+% of households pay no income taxes.

It's a recipe for disaster if we devolve into a small class of "rich" people who pay taxes, and everyone else who soaks up the benefits. First, there aren't enough rich people to soak. Second, its far to easy for the majority (most of whom are paying no income taxes) to fund their wish lists out of the wallets of "the other guy".

If people are determined to raise the rates on high earners, roll back ALL of the Bush tax cuts. And if the economy can't handle it now, then let ALL the rates go up in two years.

Posted by: WEW72 | September 20, 2010 2:58 PM | Report abuse

Any mention of stop spending? Cutting the size of government and living within reasonable means? Cutting taxes has to be matched with a significant reduction in spending, something the Spendocrats and Obama seem to refuse to accept, and hence their being voted out of office.

Posted by: Bubbette1 | September 20, 2010 3:24 PM | Report abuse

The irony, Bubbette1, is that, while energized conservative activists will claim that Democrats face heavy losses because of too much government spending, the truth is precisely the opposite.

As Ezra Klein has explained, election results are influenced far more by the nation's economic performance than by policy debates. Most voters are largely unaware, or misinformed about, the policy debates that captivate pundits and political activists. But voters notice when they are laid off, and it shows in elections.

The Democrats' dismal prospects in the upcoming elections are explained almost entirely by the slow pace of the nation's economic recovery. Overwhelming evidence demonstrates that the cause of the nation's economic woes is the lack of demand. The Stimulus was an attempt to increase demand in the market, but it didn't do enough. That's because the Stimulus was only half the size that Keynesian models predicted would be needed, as economists like Paul Krugmen explained at the time.

Thus, the "Spendocrats" will likely be "voted out of office" because they refused to spend enough. Of course, conservative activists, amplified by Fox News, will proclaim the opposite.

Posted by: QuiteAlarmed | September 20, 2010 3:56 PM | Report abuse

Lowry probably is overestimating the 3-cents increase in the tax burden on her hypothetical income tax filer if he has been bumping up against the AMT, as is likely. Obama's proposal includes several changes--not just to income tax brackets-- to include some AMT relief that can amount to thousands of dollars for her hypothetical. Try some numbers at http://calculator.taxpolicycenter.org/

Posted by: pjro | September 20, 2010 4:12 PM | Report abuse

There are many problems with how these "cuts" are spun. The Democrat's stats count the average person as having 4 kids two of who are in college, a house with mortgage , a disabled grandmother, etc...

I have come around to the idea of a flat tax or at the most two tiers. Really everyone should have a stake in supporting government expenditures. Why would you care what the tax rate is if you do not pay any taxes (and can the payroll tax BS, EK is all for cutting SS, raising the retirement age, etc...). So, ideally the federal tax rate should be 10-25% for everyone no deductions no exemptions. Alternatives, 12% for first 100K, 25% for above, consider adding a 15-20K exemption.

Start spending money like it does not grow on trees.

--David

Posted by: davidring | September 20, 2010 8:46 PM | Report abuse

Unfortunately, the truth just doesn't much matter in politics. After more than a few years of watching carefully, it's clear that the right-wing fights harder and nastier. It's very difficult to combat the fear tactics they utilize. Very difficult.

And now that corporations are free to throw millions at campaigns, we'll see how money matters. Already, Karl Rove has organized a couple of groups to funnel that money in.

We're already seeing a difference in contributions in some areas. Those who favor the corporate elite are getting more money. That'll continue, and drastically so, until the law changes.

Perhaps we should return to the skepticism our founders had for corporations. Many restrictions on their charters, the business they did, and it was a crime to influence the outcome of an election.

Posted by: stevea66 | September 22, 2010 3:07 PM | Report abuse

The author isn't making the whole picture clear. The fact is that many - or most - of the people earning $250K-$500K will be paying the Alternative Minimum Tax (AMT) in 2010 and beyond. In many cases that tax is far higher than if the Bush cuts never existed.

Even with the AMT patches proposed in recent years, many of the people in that income range (and many BELOW that income range) pay the higher AMT. So, if you worry about tax or tax revenue, I'd be much more concerned with the future of the AMT rather than whether the Bush tax cuts lapse or not.

I see in a lot of these posts that people think that people earning over $250K do not pay their fair share. First - that is simply not true. Second - with the AMT, it is much higher than you could possibly imagine.

Posted by: jonquiljo | September 24, 2010 4:35 PM | Report abuse

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