Extending “Middle-Class” Tax Cuts Would Help Wealthy Even More

August 12, 2010 at 4:42 pm

Who stands to gain the most if Congress extends the middle-class Bush tax cuts:  a middle-income worker or a millionaire?  The millionaire (see graph).  That’s one more reason — on top of those listed here — why Congress shouldn’t add a trillion dollars in deficits and debt over the next decade by also extending the tax cuts exclusively for the richest 2 percent of families.

Here’s why wealthy households make out so well under the middle-class tax cuts.  The income tax operates as a staircase, not an elevator, so people who make $1 million a year don’t go directly to the top “floor” (i.e., to the top marginal tax rate, currently 35 percent) but instead take the “stairs,” paying tax on the first increment of taxable income at the bottom rate of 10 percent, paying tax on the next increment at 15 percent, and so on until reaching the top rate.

As a result, the 2001 tax law’s reductions in the lower tax brackets benefit not only middle-income people whose incomes fall into those lower brackets, but also people in the very highest brackets.

In fact, a family making more than $1 million will receive more than five times the tax cut benefit, in dollar terms, as a middle-class family making $50,000 to $75,000, if Congress extends the middle-class tax cuts.

We’ll issue a report tomorrow that details how the different pieces of the middle-class tax cuts affect families at different income levels.  But the bottom line is that the wealthy are going to benefit from the Bush tax cuts even if Congress lets the large tax cuts aimed exclusively at them to expire.

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More About Chuck Marr

Chuck Marr

Chuck Marr is the Director of Federal Tax Policy at the Center on Budget and Policy Priorities.

Full bio | Blog Archive | Research archive at CBPP.org

4 Comments Add Yours ↓

Comments are listed in reverse chronological order.

  1. Angel Padilla #

    In all those charts you should make a comment about Social Security Taxes…it is a Federal Tax category. Itg is a regressive tax that falls ore heavily on those at the lower salary levels. It is a staircase going down. While those who make money less or equal to the current SS salary cap pay the full percentage, after that, anyone who makes more essentially got a “cut” of whatever percentage it is, depending on whether one is self employed or not.

    I earned a six figure salary. Once I reached the SS cap, I would instantly get a raise of over $450 dollars per paycheck. ( Not rocket science to figure that I was making at least x amount per payheck.).

    I would suggest that after that SS current salary cap is reached, everyone shoud pay a social security tax, not matched by the employers, which would be at a much lower rate, I don’t care if it is 1% or even less. We pay Medicare taxes on all earnings, it should be the same for social security. Is it fair? Completely. The key is to make those taxes fall only on the individuals, not the employers of those individuals.

  2. Fred #

    Just what are the top 1% required to invest in to obtain these extensions? Aren’t they the same folks complaining about the deficit?

  3. KJMClark #

    I think there might be a problem with the graph. It shows dollar amounts next to each bar, that generally seem to be proportional to width of the bar. However, the bars for the $75,000 to $100,000 group and the $100,000 to $200,000 group are different widths, but the labels are the same, at $1,900 each. Does that mean that tax benefits are the same for those two groups, the labels are wrong, or the labels and bars are actually representing different things?

    This is an important and valuable contribution to the discussion. I saw it at Prof. Mark Thoma’s CBSMarketwatch blog. I think it’s important to make sure there are no questions about what it means. Thanks.

    • CBPP #

      Thank you for pointing out that typo. We have now corrected the graph in this post.

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