Republicans — and a few Democrats, too — keep claiming that Obama’s plan to extend the Bush tax cuts on those under $250,000 would raise taxes on “job creators” and “small businesses,” because Obama wants to raise taxes on the two percent of taxpayers who earn more than $250,000.
In reality, Obama’s plan — which will be voted on in the Senate this month — actually is a continuation of a tax cut on the vast majority of the income of the vast majority of Americans, job creators and small businesses included. Senators who vote against this plan will have mainly protected the wealth of the top one percent.
Here’s why. As a few of us keep pointing out, Obama’s plan continues the tax cut on all income up to $250,000, including that earned by those who make more than that. The restoration of Clinton-era rates would only hit income above $250,000, which is earned by two out of every 100 taxpayers, and represents only a very small share of the overall income enjoyed by many of them.
Some folks get this. But the significance of it has gotten lost. What it means is that the tax hike component of Obama’s plan represents a far smaller tax increase than much of the rhetoric on this issue would lead you to believe.
I asked the nonpartisan Tax Policy Center to draw up a chart that illustrates this in a new way:
The above chart concerns the 95th to the 99th percentiles of married couples — the wealthiest Americans, not including the even richer one percent. Only around one fourth of this group makes more than $250,000 and gets hit by the tax hike.
The blue bar on the left shows how much on average in taxes couples in this overall group pay now. The bar in the center shows how much on average they’d pay in taxes if the rate goes up on their income over $250,000. As you can see, this group would only pay a relatively tiny percentage more — they’d only pay on average another $500 in taxes. That’s because, again, they continue to pay the lower rate on the vast majority of their income.
Because only the top quarter of this group would see the increase, those particular units would see an average increase of $2,000 — significantly less than the rhetoric would have you believe.
What’s more, the taxpayers in this overall group would pay significantly less under Obama’s plan than if all the tax cuts expire, as stipulated by current law. (The light blue bar on the right is what they’d pay under that scenario.)
So the real way to understand Obama’s plan is that, relative to current law, it represents a tax cut for everyone, including many rich taxpayers. Relative to what they pay now, it represents only an increase on a small share of this group’s income.
The second chart shows how Obama’s plan would impact the top one percent. Because so much of their income is over $250,000, these people would see a more significant increase — on average, around $64,000:
What this means: Only the top one percent would see a significant increase under Obama’s plan. But even under Obama’s plan, they’d still be paying less than if we do nothing and all the cuts expire.
To recap: Senators who vote against this plan will be voting against a continued tax cut on all income up to $250,000. Even that enjoyed by the wealthiest taxpayers among us, including the “job creators.” All because the plan doesn’t also continue the tax cut on the income above $250,000 that’s enjoyed by only two out of every hundred taxpayers.