The United States can’t afford to extend the expiring Bush tax cuts to the wealthiest Americans at the expense of the rest of the nation and the federal deficit.
President Barack Obama’s plan to return to pre-2001 tax levels for individuals earning more than $200,000 and families earning more than $250,000 is a first step toward fiscal sanity. Studies indicate it is the step that will cause the least pain.
First off, the tax hike would affect very few. Even at income levels of $350,000 a year, Obama’s plan only adds about $875 to a tax bill.
The Obama plan would be felt more acutely by the super-rich. That’s only right, as the super-rich most obviously benefited from the Bush tax cuts. Those earning around $8.3 million a year got tax cuts of about $370,000. That income alone is enough to place them into the top 5 percent of all American earners.
These tax cuts were never intended to be permanent. They shouldn’t be extended or made permanent when the lame-duck Congress returns for the final month of its session.
But as the country comes out of a recession, extending the middle-class tax cuts makes good sense. Keeping the 10, 25 and 28 percent tax brackets helps a majority of the country, rather than returning the middle and lower classes to 15, 28 and 31 percent brackets. Extending child tax credits also continues to make sense. The marriage penalty never made sense, and should remain a thing of the past.
These breaks benefit the vast majority. The middle class spends the money that comes back to it. Families spend their tax refunds on mortgage payments and college tuition and food. They revive and rev up the economy when they have a bit of extra change in their pockets.
The super rich are a different story. Research shows they sock the money away.
So what happens if some of the Bush tax cuts expire, as they should, at the end of the year? The top tax rate would rise only slightly, from 35 up to 39.6 percent. The 33 percent rate would return to 36 percent.
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