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Whew! Looks Like Joe the Plumber is Going to Be OK Under Obama Tax Plan

August 11, 2010

From my post at Alan Colmes’ Liberaland today:

When Congress returns from the August recess, the fight over the future of the Bush Tax Cuts will really heat up. Republican rhetoric labels this as “the largest tax hike in history,” but the truth is that a Republican-led Congress wrote the law to expire in 2011. Democrats point to this fact and say that they are simply allowing the law to unfold as written by the GOP.  That’s not really the case, either. When the GOP passed the cuts, they were constrained by the limits of the reconciliation process they used to do so, and therefore couldn’t have the cuts extend beyond 10 years. However, they never had any intention of allowing the rates to reset; their plan was always to do exactly what they are doing now: paint it as a tax hike and brow-beat nervous Democrats into extending the cuts.

The problem for the GOP is that while the Bush cuts did give a tax break to the middle class, it did not escape the public’s notice that the vast bulk of benefit in the cuts flows to the very wealthiest.  Democrats have always opposed hand-outs to the rich, not the middle class. There is no impetus, let alone political will, for the Democrats to allow the law to lapse as written. President Obama’s proposal is not to end the tax cuts for everyone, but rather, to allow them to expire for taxpayers making over $200,000 per year individually or $250,000 jointly, while extending the cuts for everyone else.

A new nonpartisan analysis being circulated on the Hill yesterday takes a closer look at the impact of the plan on high income taxpayers. Essentially, Obama’s plan would have very little effect on 76% of tax-payers.

…the biggest burden would fall on the 608,000 taxpayers who make between $500,000 and $1 million and the 315,000 who earn more than $1 million….For those under $500,000, the tax increase is “relatively low,” said Roberton Williams, an economist with the Urban Institute in Washington who studied the report. “It’s less than 1 percent.”

One reason for the muted effect on those taxpayers, he said is that high-income Americans also reap built-in savings by retaining reduced rates that apply to lower-income categories. The top tax bracket doesn’t currently begin applying until taxable income after deductions exceed $372,950. [Ryan J. Donmoyer,]

So the very wealthiest will take a hit, but those closer to the $250,000 threshold don’t have much to worry about. That destroys the Republican faux-concern for small businesses, á la Joe the Plumber’s imaginary business from the 2008 election season.  No matter, the GOP has signaled a willingness to oppose the extension of cuts for the middle class if the cuts for the rich aren’t preserved. To make matters worse, there are centrist Democrats making noise that they want to extend the entire package as well. It is an election year, after all, but these politicians would do well to take a look at the results of a recent Pew poll which found that only 30% of the public wants to see all the Bush cuts in place, while 58% want to see either all cuts or at least those for the wealthy repealed. It is also worth noting, from the chart at right, that these numbers have not significantly changed over time. The Bush tax cuts have never been very popular.

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