The big lie of the fiscal cliff is that the argument is between Democrats who want to raise your taxes and Republicans who want to cut your taxes. That's wrong. Republicans want to raise taxes on more people than the White House does.
On the biggest tax question coming before the Congress, Democrats and Republicans agree: Taxes should be kept very, very low for almost all Americans.
Both parties say that for income under $250,000, the Bush tax cuts should be made permanent. No matter how you look at it, that's the vast, vast majority of the Bush tax cuts. It's 80 percent of the revenue and 96 percent of taxpayers. As my colleague Zack Goldfarb observes, this is a rather shocking position for Democrats to have embraced. It makes them defenders of tax cuts they once opposed and puts them nearer to George W. Bush on taxes than to Bill Clinton. But it's their position nonetheless.
Democrats do want to raise taxes on families making more than $250,000. You sometimes hear Democrats say they just want to "restore the Clinton-era rates" for these folks, but that's misleading. In addition to letting the Bush tax cuts expire, the White House wants to add about $700 billion in further tax increases on these taxpayers. And that's in addition to the high-income taxes passed in the health-care law. Under Obama's plan, taxes on the richest Americans would be much higher than under the Clinton tax code.
So yes, Democrats want to raise some taxes. But so do Republicans. They want to let the payroll tax cut and the various stimulus tax credits (notably the expansion of the Earned Income Tax Credit and the Child Tax Credit) expire. Those are the tax cuts that primarily help poor and middle-class Americans. In fact, 87.8 percent of the payroll tax cut's benefits go to taxpayers making less than $200,000 and 99.9 percent of the stimulus tax credits' benefits go to taxpayers making less than $200,000.
And those tax cuts help many, many Americans. Pretty much everyone who works benefits from the payroll tax cut. Pretty much everyone who works in a low-wage job benefits from the stimulus credits. Whereas the tax cuts for income over $250,000 help about 4 percent of taxpayers, these cuts and credits help almost every taxpayer. Letting them expire will thus raise taxes on many, many more people than letting the high-income Bush tax cuts expire.
(It's worth noting here that support for the payroll tax cut isn't universal among congressional Democrats. Some worry that it appears to undermine Social Security's finances, even though the law says that the revenue removed from Social Security will be replaced by revenue from the general fund. These Democrats would happily sign onto a replacement for the payroll tax cut, but Republicans haven't been open to that, either.)
Republicans argue that these policies weren't really tax cuts, that they were temporary stimulus measures designed to be tax cuts. And it's true that their primary purpose was stimulus. But the Bush tax cuts were also designed to be temporary and they were sold as stimulus once the 2001 recession began. "By ensuring that Americans have more to spend, to save, and to invest, this legislation is adding fuel to an economic recovery," President Bush said in 2003, upon signing the second set of his tax cuts.
Meanwhile, it's also true that because the payroll tax cuts and the stimulus tax credits were designed as pure stimulus measures, they offer a much better bang-for-the-buck in protecting the recovery. So that is, if anything, an argument in favor of keeping them and letting the Bush tax cuts expire or phase out.
A truthful way of phrasing the fight over taxes is that Republicans are fighting to stop a sharp tax increase on a small number of rich people and the White House is fighting to stop a tax increase on most everyone else. Or to put it still more bluntly, Democrats want to raise taxes on the rich, Republicans want to raise them on the poor and the middle class.
And it's worth noting that, in this dimension of the negotiations, Republicans are winning. In his most recent offer, President Obama proposed keeping the Bush tax rates for normal income under $400,000, thus limiting the tax increase on the rich, but accepted the expiration of the payroll tax cut. So most Americans will indeed be getting a tax increase next year, and one Republicans fought for.