Via Yglesias I see this fairly remarkable fact: even if only the "middle-class" tax cuts remain law, who will benefit the most? Yep, you guessed it. The well-off and rich. For example, if only the middle-class tax cuts are kept, someone making $40,000 to $50,000 will save $916, but those making between $100,000 and $200,000 will save on average $3,766.
Why? Well, in a way it stands to reason, right? Tax rates are marginal, i.e., every dollar earned up to a certain amount is taxed at a certain rate. As I've pointed out many times, when we say people over $250,000 pay 35%, what is actually true is that they pay 35% only on every dollar earned above $250,000. On their, say, 49,999th-dollar, they pay less, I think 28%. And on their 19,999th-dollar, they may pay 15%. Et cetera.
So a person who makes $249,999 still benefits from the middle-class tax cut. And since she makes a lot more than person who makes, say, $49,999, she will save a lot more money on the rate reductions up to $249,999. For that matter if she makes $2 million, she'll still save on the reductions up to the first $249,999 earned. Capice?
The thing is, she'll get a lot less back without the extension of the upper-end Bush cuts. Matt was pointing to a Center on Budget and Policy Priorities study that shows the following:
Households with incomes exceeding $1 million will receive an average tax cut of $6,349 in 2011 if the middle-class tax cuts are extended while the high-income tax cuts are allowed to expire. (They will receive an average tax cut of nearly $104,000 if the high-income tax cuts are extended as well.)
The story is similar, if not quite as dramatic, for households that make between $500,000 and $1 million. They will receive an average tax cut of $6,701 if the middle-class tax cuts are extended (and of $17,467 if the high-income tax cuts are also extended).
For all other income categories, by contrast, the size of the tax cuts are about the same whether the high-income tax cuts are extended or not. Even for households with incomes between $200,000 and $500,000, the effects are similar. The Joint Tax Committee figures show that they would receive an average tax cut of $6,743 if only the middle-class tax cuts are extended, and of $7,152 if the high-income tax cuts are extended, as well.
In other words, then, what the Republicans are really arguing for here, if you think about the above numbers, is an A-Rod tax cut. So people above a million can get their average $104,000 tax cut (which means of course that those way above a million get way more back).
The Democrats of course ought to be pointing out that even under their plan, millionaires will get tax relief on their dollars up to a quarter-mil. It's kind of a far cry from my father's Democratic Party, but it would probably be politically effective under the circumstances.
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