TNR: Cost of Extending Bush Tax Cuts to Households Making over $1 Million

[flpoljunkie]

If I Had a Million Dollars...
Jonathan Cohn



November 23, 2010


Democratic leaders want to hold two votes on extending the Bush tax cuts: One on extending cuts for the middle class and one on extending cuts for the rich. But the line between "rich" and "middle class" has traditionally been drawn at $250,000 in income. And some Democrats think the line should be a lot higher--specifically, $1 million.

It's a pretty absurd argument on the merits. Median household income in this country is around $50,000 a year. If you make more than $250,000 a year, you're very wealthy. And you'd still be getting a tax cut on that first $250,000 of income, under any of the political scenarios under consideration. The only question is whether you'd get additional tax breaks on income above $250,000.

Still, as my colleague Noam Scheiber notes, moving the threshold to $1 million does have certain political appeal: It's a nice, clean number. It's a number virtually everybody would agree defines as "rich." And it would help create a healthy precedent for separating the tax treatment of millionaires from the tax treatment of everyone else, effectively creating a millionaires tax bracket, which is something that really should happen.

OK, so what would the fiscal impact of this switch be?

When this idea first surfaced a few weeks ago, I put that question to researchers at the Center on Budget and Policy Priorities. Using very rough, preliminary numbers, they concluded that the ten-year cost of extending tax cuts for incomes below $250,000 was $3.2 trillion and that the cost of extending cuts for incomes less than $1 million was $3.6 trillion. In other words, the higher threshold would cost an additional $400 billion over ten years.

That's a lot of money, particularly at a time when, in theory, we're trying to come up with ways of improving the government's long-term finances. Then again, it's also better than extending all of the tax cuts permanently, which would cost the government roughly an additional $400 billion over the next ten years.

Of course, I'd still prefer the government extend the middle-class cuts temporarily and none of them permanently. But I've about given up on that possibility.

[FreakinDJ]

1. Obama has been critical of so-called tax loopholes

President Obama has been critical of so-called tax loopholes because, he maintains, they unfairly reward some industries—such as the oil and gas industry—and incentivize others to expand overseas rather than domestically. Despite this well stated position, the president's recently released FY 2012 budget shows that, like most people, he believes there are good tax expenditures and bad tax expenditures, and one's opinion and priorities determine which is which.

On the one hand, the president's budget recommends eliminating or modifying more than $242 billion worth of tax expenditures benefiting multinational firms, oil and gas firms, coal companies, and insurance companies. On the other hand, the budget recommends making the Research and Experimentation Tax Credit permanent (worth $106 billion over ten years) and expanding a variety of other targeted tax credits for business worth more than $15 billion over ten years.

http://taxprof.typepad.com/taxprof_blog/2011/03/tax-foundation-who.html