The "middle-class" tax cuts benefit mostly the rich, too

[Hannah Bell]

In this podcast, we will discuss the debate about taxes that will take center stage when Congress returns after Labor Day. I’m Michelle Bazie and I’m joined by Chuck Marr, Director of Federal Tax Policy at the Center.

http://www.cbpp.org/cms/index.cfm?fa=view&id=3272

2. What are these middle class tax cuts?

The key middle class tax cuts are the expansion in the child tax credit, a reduction in some of the lower tax bracket rates, and marriage penalty relief which is designed to make sure that two people don’t face higher taxes if they get married – and file jointly.

3. Who benefits from these middle class tax cuts?

This point is essential in understanding how the cuts work. The provisions in the so-called middle class tax cuts are actually broadly based. This means that most taxpayers get some benefit from one or more of the provisions.

I think some people would be surprised to learn that, in dollar terms, high income people tend to actually get the most benefit out of these so-called middle class tax cuts.

This is because the income tax is more like a stair case than an elevator. High income people do not go directly to the top floor and pay the top tax rate on all of their income. Instead, they walk up the tax bracket stairs and pay different rates for different portions of their income. For example, this means that if one of the middle class tax bracket rates is cut all of the people that have incomes above that rate – higher up the staircase – also get a tax cut.

http://www.cbpp.org/cms/index.cfm?fa=view&id=3272


High-Income People Would Benefit Significantly From Extension of “Middle-Class” Tax Cuts

A fact generally overlooked in the debate over whether Congress should extend the high-income Bush tax cuts — i.e. those targeted exclusively at couples making over $250,000 and single individuals making over $200,000 — is that these households will still receive substantial tax cuts if Congress extends the so-called “middle-class” Bush tax cuts while letting the high-income tax cuts expire as scheduled.

This is because the 2001 tax law’s reductions in the lower tax brackets benefit not only people whose incomes fall within the lower brackets but also those whose incomes exceed those brackets. In fact, high-income people actually receive much larger benefits in dollar terms from the so-called “middle-class tax cuts” than middle-class people do.<1>

Specifically, recent estimates from the Joint Committee on Taxation show that extending just the middle-class tax cuts would provide more than $6,300 in tax cuts to households with incomes above $200,000, on average, compared to $1,132 in tax cuts for households with incomes between $50,000 and $75,000. The Joint Tax Committee estimates show:

■Households with incomes exceeding $1 million will receive an average tax cut of $6,349 in 2011 if the middle-class tax cuts are extended while the high-income tax cuts are allowed to expire. (They will receive an average tax cut of nearly $104,000 if the high-income tax cuts are extended as well.)

http://www.cbpp.org/cms/index.cfm?fa=view&id=3263

[the redcoat]

1. while i'm not disputing those numbers...

I think some key facts that are missing are percentages.

a tax cut of $6349 on $1 million, for example, comes out to keeping .63%, whereas $1132 off of $50,000 comes out to keeping 2.3%.

i know this is overly simplified, but from just those numbers alone you see the lower middle class getting 4 times the tax cut of a millionaire.

[pinboy3niner]

2. You're missing the staircase effect

As the President pointed out today, a tax cut on 200-250K of income ALSO goes to higher earners on their first 200-250K:

"Now, I just don’t believe this makes any sense. Even as we debate whether it’s wise to spend $700 billion on tax breaks for the wealthy, doesn’t it make sense for us to move forward with the tax cuts that we all agree on? We should be able to extend right now middle-class tax relief on the first $250,000 of income -- which, by the way, 97 percent of Americans make less than $250,000 a year. So right off the bat, 97 percent of all Americans would get tax relief on all their income. People who are making more than $250,000 a year, say, you’re making half a million dollars, you’d still get tax relief on half your income."

Remarks by the President on Small Business Jobs Bill
http://www.whitehouse.gov/the-press-office/2010/09/15/remarks-president-small-business-jobs-bill

[Hannah Bell]

4. the $700 billion is cuts targeted directly at the rich -- different from the "middle class"

cuts which everyone actually gets.

[pinboy3niner]

10. The President's point was the same as the OP's

That the so-called "middle class" cuts benefit all taxpayers, including the wealthy--even without extending another $700B tax cuts for the rich.

[Hannah Bell]

3. yes, i agree -- for individuals as a percent of income. in terms of the entire amount of cuts,

the rich get a larger percent, though.

[hfojvt]

5. that was the nonsense argument that Bush used

As if $1,132 is bigger than $6,349 because one is .63% of a million and the other is 2.3% of $50,000.

Your argument is that $1,000 is four times as large as $6,000?

That argument might make sense if rich people actually had to pay 4 times as much for equivalent cars, houses, appliances, groceries, etc.

[the redcoat]

6. no, my argument is

ok well, first off i am/was not trying to argue in favor of upper class tax cuts.

but on that same token, you cannot go around expecting that taxes and tax cuts are somehow going to automagically make every income the same. It seems like some people do indeed think this.

what I was saying is that (based solely on) the tax cut figures in the OP show that, proportionally, more is being given back to lower income households, while the OP seems to be arguing that the opposite is true.

I'm not saying it's perfect or that more shouldn't be done, or that there shouldn't be a focus on this. I'm saying don't argue points that don't exist.

[hfojvt]

11. the point that does not exist is the proportionality argument

the one that says $1,000 is bigger than $6,000. Guess what? Even if $6,000 is a smaller percentage to the brazillionaire than $1,000 is to a $50,000 worker, the rich person can still buy more with $6,000 than the worker can with $1,000. And thus got more, much more. Six times as much.

Except in the eyes of people who want to play games with percentages.

More is being given to the higher income households, because proportionality does not mean anything in the real world. It's just a fake way to give lots of money to rich people and pretend that you are really giving more to working people. Otherwise you could give $15 to me (income $13,000) and give $250,000 to a guy who makes $300,000,000 a year and you would argue that I really got more money since I got .12% of my income and the poor deprived super-rich person "only" got .08%. Are you really going to argue that $15 is greater than $250,000? Because, proportionally, it is.

[Scuba]

7. Lost in the discussion is the favorable tax rates on income....

...that one gets WITHOUT WORKING. Why should capital gains of billions get a more favorable rate than someone toiling for $6.50 an hour?

And the inheritance tax, sometimes called the "death tax". In its current form, the rate is zero. Yes, zero.

Well, I call it the "Paris Hilton Tax Relief Act". For her brilliant contributions to society, should Paris lose her parents, she will get to keep ALL of the money her grandfather made, plus future profits, while the maids who cleaned all those hotel room starve, or die because they can't afford treatment for their health problems.

That's just wrong.

[Hannah Bell]

8. yep, & that's the other part that's not being talked about -- as well as corporate rates.

[Scuba]

9. Thanks for your activism....

...for the maids, busboys, desk clerks and everyone else who helped make the Hiltons rich.

Interesting discussion yesterday, when I realized I have no problem with her being filthy rich and wasting her life. But her being able to do it while others suffer needlessly is not tolerable.

[MadHound]

12. Frankly I wish that they would simply let all the tax cuts expire

Tax cuts are the least effective form of economic stimulus. We would be much better served by taking a portion of that revenue and creating a WPA style jobs program. Most folks would lose out on a few hundred dollars in tax money, but would regain that and more with a rejuvenated economy.