Monday, August 16, 2010

High-Income People Would Benefit From Extension of “Middle-Class” Tax Cuts

According to the Center on Budget and Policy Priorities, the media seems to ignoring a set of tax incentives for middle class Americans when discussing the expiration of the Bush tax cuts. In addition to helping taxpayers with average incomes, they would also provide tax breaks to taxpayers making over $200,000 per year.

This is because the 2001 tax law’s reductions in the lower tax brackets benefit not only people whose incomes fall within the lower brackets but also those whose incomes exceed those brackets. In fact, high-income people actually receive much larger benefits in dollar terms from the so-called “middle-class tax cuts” than middle-class people do.

Specifically, recent estimates from the Joint Committee on Taxation show that extending just the middle-class tax cuts would provide more than $6,300 in tax cuts to households with incomes above $200,000, on average, compared to $1,132 in tax cuts for households with incomes between $50,000 and $75,000. The Joint Tax Committee estimates show:

  • Households with incomes exceeding $1 million will receive an average tax cut of $6,349 in 2011 if the middle-class tax cuts are extended while the high-income tax cuts are allowed to expire. (They will receive an average tax cut of nearly $104,000 if the high-income tax cuts are extended as well.)
  • The story is similar, if not quite as dramatic, for households that make between $500,000 and $1 million. They will receive an average tax cut of $6,701 if the middle-class tax cuts are excluded (and of $17,467 if the high-income tax cuts are also extended).
  • For all other income categories, by contrast, the size of the tax cuts are about the same whether the high-income tax cuts are extended or not. Even for households with incomes between $200,000 and $500,000, the effects are similar. The Joint Tax Committee figures show that they would receive an average tax cut of $6,743 if only the middle-class tax cuts are extended, and of $7,152 if the high-income tax cuts are extended, as well.

Continue reading at CBPP.org…