As early as next week the U.S. Senate will debate and vote on proposals to extend the Bush tax cuts. The House is expected to vote on the measures the following week.
At present there appear to be four proposals for extending the Bush tax cuts, which expire at the end of this year. If no agreement is reached, taxes on income, dividends and capital gains will rise to levels in place during the Clinton Administration. Each of the proposals seek a one-year time frame, ensuring that the longer-term debate is far from finished.
President Obama’s proposal
The President proposes to maintain tax cuts for families earning less than $250,000 a year, and allowing taxes on dividends to once again be taxed as ordinary income. The $250,000 threshold encompasses about the top 2% of taxpayers. He proposes returning the capital gains tax rate to 20% from the current 15% level. The cost of the President’s one-year plan would be $243 billion according to Citizens for Tax Justice (CTJ).
House Minority Leader Nancy Pelosi’s proposal
Leader Pelosi calls for setting the threshold not at $250,000, but at $1 million. This would cost $28 billion more than the President’s plan, with most of the tax savings going to families with more than $1 million in income.
Senate Democrats Plan
Senate Democratic leaders have outlined a plan that embraces the President’s $250,000 threshold for ordinary income, but extends a 20% tax rate to dividend income. This plan greatly advantages the wealthiest Americans. For instance, the Obama proposal provides an $11,454 tax break for families with more than $20 million in income, versus a $166,490 tax break under the Senate Democrats plan, according to CTJ. Families with $1 million in income would get more than $6,000 more in tax breaks under the Senate Democrats plan than the President’s.
House Republicans Plan
House leadership continues to favor a plan that extends the Bush tax cuts for all taxpayers. This would have a one-year cost of $311 billion, $68 billion more than the President’s plan.
The American public continues to overwhelmingly be concerned by the lack of fairness in the current tax code and supports allowing income tax rates to rise to former levels for the top 2% of taxpayers. In the polarized debate over raising taxes on some and not others, it is important to remember that even under the President’s plan, the wealthiest 2% retain more than $8,000 of their Bush tax cuts on their first $250,000 in income, a tax cut which is more than six times the $1,200 received by an average family earning $50,000 a year.
Scott Klinger, WFCG policy director authored this blog.