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.