JONATHAN COHN NOVEMBER 23, 2010
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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.
7 comments
"create a healthy precedent for separating the tax treatment of millionaires from the tax treatment of everyone else" I'm pretty sure Scheiber is smarter than this facile use of language would suggest. Anyone who regularly has over $250,000 in taxable income is either relentlessly focused on spending everything on disposable consumer purchases, or they are millionaires after not too many years. It just doesn't take long in most parts of the country to get well ahead of the game on that kind of income, if you have any investment sense at all. The median family income figure quoted by Cohn says it all. Half the country is living in households earning less than 25% of this supposed "middle class cutoff point." Enough already with this nonsense of raising it being about the middle class. It's a way for Democrats to pander to the wealthy professional and managerial class and themselves, and nothing more.
- IowaBeauty
November 23, 2010 at 4:57pm
I got an idea. Let's throw darts and see where they stick. Or, let's consult religious leaders for tax tips. Don't bother thinking about the best way to collect revenue with the least damage on the economy, just worry that someone won't like it and then run up the debt.
- Nusholtz
November 23, 2010 at 6:49pm
Or, just leave the taxes where they are. Raise the retirement age to something reasonable given our decade and a half increase in life expectancy since 1934; raise the cap on social security taxes; means-test EVERYTHING; close most of our military bases in Germany and Japan; eliminate most subsidies, starting with the ones going to agribusiness; dramatically reform the tax code to be simpler and flatter--and the problem is pretty much solved. It would be fine with me, and almost certainly good for the country, to also phase out the Departments of Education (just send the money back to the States), Commerce, and Homeland Security. At least.
- Robert Powell
November 24, 2010 at 4:14am
Powell, On Education. Our most important resource is education and our consumption based economy is driven by technology (the stores are waiting for the next big thing, from microwaves to VCR's to computers to phones and on). National government should purchase research from the schools. On taxes. No evidence that the current rates are doing any good for employment. Low dividend and capital gains rates might be prop up the stock market, but other factors are more controlling. Means testing social security would work if we got rid of the social security tax and went straight to something like welfare for senior citizens.
- Nusholtz
November 24, 2010 at 7:03am
Nusholtz-- Getting rid of the Department of Education doesn't mean a reduced emphasis on education. In fact, simple grants to existing state education bureaucracies would mean more rather than less support. I like the idea of buying research. I am aware that there's no evidence that the current rates are doing any good for employment, but there's also no evidence that they're not. Under the circumstances I think the psychology of the markets would punish a tax increase. Besides, when there is so much to be gained from cutting things that are demonstrably wasteful and counter-productive, I'd rather start there. Currently SSI is welfare for senior citizens by another name. I'm all for calling a spade a spade, and it's surely a progressive move to eliminate that tax.
- Robert Powell
November 25, 2010 at 3:43am
Nusholtz-- Getting rid of the Department of Education doesn't mean a reduced emphasis on education. In fact, simple grants to existing state education bureaucracies would mean more rather than less support. I like the idea of buying research. I am aware that there's no evidence that the current rates are doing any good for employment, but there's also no evidence that they're not. Under the circumstances I think the psychology of the markets would punish a tax increase. Besides, when there is so much to be gained from cutting things that are demonstrably wasteful and counter-productive, I'd rather start there. Currently SSI is welfare for senior citizens by another name. I'm all for calling a spade a spade, and it's surely a progressive move to eliminate that tax.
- Robert Powell
November 25, 2010 at 3:44am
IowaBeauty: "Half the country is living in households earning less than 25% of this supposed "middle class cutoff point." Yes, but they are likely retirees (1 or 2 person households) with median net assets north of $230K. The number to really focus on is what is the median salary of "prime age" (35 to 50) families. Taken over a 10 year average, that figure is north of $70K. Looks like the Bush tax cuts equally benefited the middle class and the wealthy afterall according to Cohn's numbers.
- seattleeng
November 26, 2010 at 12:01pm