Bush tax cut deal: the more you earn the more you benefit

Tuesday, November 6th, 2012 By

bush tax cut deal favors passengers, not the driver

The Bush tax cut deal includes across the board benefits, but the generosity of the tax breaks goes up with income. Image: CC iBjorn/Flickr

Coverage of the Bush tax cut deal proposed by the Obama administration this week has focused on tax cuts for the rich. But the tax compromise contains other provisions that would benefit ordinary Americans, depending on how well off they are. Economists are praising the deal as a stimulus package once thought impossible after the midterm elections.

Inside the Bush tax cut deal

The Bush tax cut deal will cost the federal government nearly $900 billion dollars over the next two years. A great deal of that money will go to people who could live very comfortably without it. But what is left of the middle class stands to benefit from such items as a payroll tax holiday, child tax credit, a tuition tax credit and a federal unemployment extension carrying through 2011. If the Bush tax cuts had expired as planned, middle class taxpayers would be taking home up to $200 dollars less on payday starting next month. Lower-income Americans would have seen their payroll tax rate rise from 10 percent to 15 percent.

More tax cuts for the rich

There’s something for everyone in the Bush tax cut deal. But the benefits are skewed toward the rich. The payroll tax holiday takes two percentage points off the current 6.2 percent taken out of paychecks. Someone making $100,000 would get a tax cut ten times bigger than someone making $10,000. Census data shows the average U.S. family earns about $52,000 a year. A Bush tax cut extension will save these households $1,180 on average in 2011–about 2.3 percent of income. Families earning from $200,000 to $500,000 would save about $7,500. Taxpayers making $1 million and more, about $129,000 — nearly 6.2 percent of income.

Where the money goes

Broken down into Republican and Democratic wishes, the Bush tax cut deal favors the latter. Of its $900 billion cost, just $120 billion goes to tax cuts for the rich. Tax breaks proposed by the Obama administration take $450 billion from the total. The Bush tax cut extensions for the middle class will cost $360 billion. Economists are praising the deal. Analysts revised estimates for economic growth and employment upward on the news. Liberal research groups in Washington said the Bush tax cut deal will do more to create jobs than anyone hoped with Republicans in control of Congress.

Sources

CNNMoney.com

MainStreet

New York Times

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This post has 3 comments

  1. Deborah Brown says:

    The reason for all the "fuss" is that the top 2% of Americans – many earning well in excess of $250K is simply an unnecessary "gift" during hard times. People who might be included in this would be Paris Hilton on the family payroll, football players and their coaches earning 10million annually, entertainers, and many, many folks who don't the need the money and probably wouldn't spend it on anything American anyway… these folks drive BMW, Mercedes, Ferrari's and buy clothes from Paris. So, people at or near the $250K mark are panicked… but they don't have to be, just make a charitable donation to bring you down to $249,999 and your're fine. Businesses worry the taxes won't allow them to meet payroll, buy new inventory, etc… this is silly because there is big difference between income from sales and TAXABLE income — which means the income that is left AFTER payroll, insurance premiums, cost of goods, bad debt, maintenance & repairs, rents, company vehicle costs, operating expenses… taxable income is what is left after everything is paid for. A small business at or near the $250K mark could easily project this in December and buy a new piece of equipment or maybe hire a part-time employee to bring the taxable income down. Of course this won't help corporate giants like Walmart and Wall Street… but do they really need a break? Seriously, there are millions in this country who lost their jobs first, searched for work during the height of hiring freezes, now labeled as "do not hire" have no income and are not included in this "new deal"… these folks would spend the money on toilet paper, shampoo, gas for the car (if they still have one), etc… so it makes no sense to worry about Paris Hilton and Walmart right now…

  2. Biglead says:

    Why is the left saying that the republicans are being fiscally irresponsible when the dems proposals total 800 billion and all the repubs want is not to raise taxes on people making 250k or more which willbe 120 billion.Again the left just keep assuse withy no basis.They continue to be a joke.

  3. Taruna Oils says:

    You talk like you think raising taxes brings in more money. It doesn’t. It just slows the economy down, and you end up collecting less money anyway. The people who pay those taxes get a vote. They can refrain from investing, defer income, take their vacation instead of working, and a host of other micro and macro decisions that will lessen their tax burden.

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