If I Had a Million Dollars...

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JONATHAN COHN NOVEMBER 23, 2010

If I Had a Million Dollars...

Democratic leaders want to hold two votes on extending the Bush tax cuts: One on extending cuts for the middle class and one on extending cuts for the rich. But the line between "rich" and "middle class" has traditionally been drawn at $250,000 in income. And some Democrats think the line should be a lot higher--specifically, $1 million. 

It's a pretty absurd argument on the merits. Median household income in this country is around $50,000 a year. If you make more than $250,000 a year, you're very wealthy. And you'd still be getting a tax cut on that first $250,000 of income, under any of the political scenarios under consideration. The only question is whether you'd get additional tax breaks on income above $250,000.

Still, as my colleague Noam Scheiber notes,  moving the threshold to $1 million does have certain political appeal: It's a nice, clean number. It's a number virtually everybody would agree defines as "rich." And it would help

create a healthy precedent for separating the tax treatment of millionaires from the tax treatment of everyone else, effectively creating a millionaires tax bracket, which is something that really should happen.

OK, so what would the fiscal impact of this switch be?

When this idea first surfaced a few weeks ago, I put that question to researchers at the Center on Budget and Policy Priorities. Using very rough, preliminary numbers, they concluded that the ten-year cost of extending tax cuts for incomes below $250,000 was $3.2 trillion and that the cost of extending cuts for incomes less than $1 million was $3.6 trillion. In other words, the higher threshold would cost an additional $400 billion over ten years.

That's a lot of money, particularly at a time when, in theory, we're trying to come up with ways of improving the government's long-term finances. Then again, it's also better than extending all of the tax cuts permanently, which would cost the government roughly an additional $400 billion over the next ten years. 

Of course, I'd still prefer the government extend the middle-class cuts temporarily and none of them permanently. But I've about given up on that possibility.

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posted in: jonathan cohn, politics

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