GOP plan to extend tax cuts for rich adds $36 billion to deficit, panel finds

Washington Post Staff Writer
Thursday, August 12, 2010

A Republican plan to extend tax cuts for the rich would add more than $36 billion to the federal deficit next year -- and transfer the bulk of that cash into the pockets of the nation's millionaires, according to a congressional analysis released Wednesday.

New data from the nonpartisan Joint Committee on Taxation show that households earning more than $1 million a year would reap nearly $31 billion in tax breaks under the GOP plan in 2011, for an average tax cut per household of about $100,000.

The analysis, requested by Democrats on the tax-writing House Ways and Means Committee, comes as debate heats up over tax cuts enacted during the Bush administration, most of which are scheduled to expire at the end of this year. Republicans want to extend all the cuts, which would cost the Treasury Department $238 billion in 2011, according to the taxation committee. President Obama and congressional Democrats have vowed to extend the cuts only for families making less than $250,000 a year and individuals making less than $200,000 -- 98 percent of American taxpayers -- in a plan that would add about $202 billion to next year's deficit.

Given the soaring national debt, many economists deem both proposals unaffordable. Even some Republicans, including Reagan administration budget chief David Stockman and former Fed chairman Alan Greenspan, have urged lawmakers to let them expire and allow income tax rates to pop back up to their levels during the Clinton administration.

Obama campaigned on a pledge not to raise taxes for the middle class, however. And with midterm congressional elections in November, few politicians in either party are calling for full repeal. Instead, lawmakers are gearing up for a battle when they return to Washington in September over the small fraction of the tax breaks that benefit the nation's richest families.

Both sides are eager to engage that fight on the eve of the election. Democrats see a political advantage in accusing Republicans of holding tax breaks for the middle class "hostage" in order to get tax cuts for the wealthy, though it's not clear that GOP lawmakers would in fact block extension of the middle-class cuts if they were offered alone.

Republicans accuse Democrats of plotting one of the biggest tax hikes in American history, arguing that raising taxes on wealthy households would punish the very people capable of creating jobs, spurring economic growth and reducing the 9.5 percent unemployment rate. About half of all small-business income is reported on the individual returns of people making over $250,000 a year, according to the taxation committee's data, though those taxpayers represent only about 3 percent of small businesses.

"We cannot forget that a lot of those people are small businesses," said Sage Eastman, a spokesman for Rep. Dave Camp (Mich.), the senior Republican on Ways and Means. "The American people don't want them paying higher taxes -- they want them hiring more people."

Democrats counter that wealthy households would receive a tax benefit under their plan. The joint committee analysis shows that million-dollar households would continue to receive an average tax break of about $6,300 next year compared with full repeal -- significantly more than the average break of about $1,100 that would go to families making less than $200,000 a year, according to the taxation committee.

Despite that bit of news, the nation's 315,000 millionaires are unlikely to feel grateful; the joint committee said their overall federal tax rate would jump to about 29.9 percent under the Democratic plan, compared with 24.6 percent if all the tax cuts were extended.

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