The fiscal cliff is… progressive?

October 1, 2012

The Tax Policy Center has calculated that the fiscal cliff will raise taxes on 90 percent of Americans, raising the average tax rate 5 percentage points. 

The tax hike would be largely progressive, with the tax rate increasing more on high-income Americans than lower-income taxpayers. The lowest 20 percent would see their tax rates increase by 3.7 percentage points, while the top 1 percent would see a 7.2 percentage point increase, the study explains (pdf):

(Source: Tax Policy Center)

That's because what's known as the "fiscal cliff" is actually a whole basket of different tax breaks and cuts that are expiring and they affect wealthier Americans differently than lower-income Americans: The richest benefit disproportionately from the Bush tax cuts for capital gains, the estate tax and a package of temporary tax breaks known as "tax extenders"; the poorest will be hit hardest if the expanded Earned Income Tax Credit and other breaks under the stimulus expire. 

(Source: Tax Policy Center)

In real dollar terms, taxes would increase by an average of nearly $3,500 per household, with an average $2,000 increase for middle-class taxpayers. But the breakdown of the tax hikes on different groups will be at the heart of the fiscal cliff debate on the Hill, as both parties will be fighting to extend certain tax breaks to benefit particular constituencies.

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Suzy Khimm · October 1, 2012