Do the Rich Need *Bigger* Tax Cuts?

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JONATHAN COHN AUGUST 23, 2010

Do the Rich Need *Bigger* Tax Cuts?

Yes, I have more to say about the debate over extending all of the Bush tax cuts, including those that affect only the top income brackets. And I'm going to start by quoting what Paul Krugman said, in this morning's column, about who would benefit from such an extension:

According to the nonpartisan Tax Policy Center, making all of the Bush tax cuts permanent, as opposed to following the Obama proposal, would cost the federal government $680 billion in revenue over the next 10 years. ... Nearly all of it would go to the richest 1 percent of Americans, people with incomes of more than $500,000 a year. But that’s the least of it: the policy center’s estimates say that the majority of the tax cuts would go to the richest one-tenth of 1 percent. Take a group of 1,000 randomly selected Americans, and pick the one with the highest income; he’s going to get the majority of that group’s tax break. And the average tax break for those lucky few--the poorest members of the group have annual incomes of more than $2 million, and the average member makes more than $7 million a year--would be $3 million over the course of the next decade.

But even Krugman's column doesn't capture the full absurdity of what the Republicans and some conservative Democrats are proposing to do. Suppose this effort fails and the tax cuts for the top brackets expire, just as President Obama and his allies hope. The wealthiest Americans would still get a tax cut. In fact, they'd still get a larger tax cut than everybody else.

The reason is simple. Tax brackets affect everybody, regardless of total income. Let's say I make $50,000 a year and you make $50 million a year.  We both pay the same tax rate on the first $50,000 of income--and if tax reductions affecting that level of income remain in place, as they would if Obama and his allies prevail, we'd get identical tax cuts on that $50,000.

But my tax cuts would stop there, since I have no more income. You'd get additional cuts on income above $50,000, all the way up to money at the very top brackets. In other words, your tax cut would be bigger than mine.

How much bigger? The Center on Budget and Policy Priorities has calculated the average tax break for each income group, based on data from the Joint Committee on Taxation. Here's what it looks like graphically:

 

So, just to be clear, if we let the upper income tax cuts expire, the average tax break for people making more than a million dollars a year will be about six times as big as what people making between $40,000 and $75,000 a year. 

If it were up to me,* we'd give these people even smaller tax cuts. Instead, Republicans and some conservative Democrats want to give them bigger ones.

Their economic logic is, as I said before, weak. Their moral logic is even weaker.

*Actually, if it were up to me, we'd let all of the tax cuts expire, and instead pass a jobs program that focused on public works spending, aid to the states, and temporary tax cuts for lower income workers.

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posted in: jonathan cohn, obama, paul krugman

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