Archives

When Congress returns from its August recess next month, it faces the critical business of addressing the more than $5 trillion in tax packages signed under President Bush and President Obama set to expire in January 2013.

Before leaving town, the US House and the US Senate each managed to pass legislation extending these tax breaks, but these two plans treat the middle class very differently.  The Senate version extends tax cuts for 98% of Americans for one year, while eliminating tax breaks on incomes over $250,000—a provision which will reduce the Federal budget deficit by $1 trillion and only affects 2.2% of North Carolina’s residents.

The House-passed version, on the other hand, embodies very different priorities.  It keeps in place the tax cuts for incomes over $250,000 for another year, while eliminating tax credits for more than 13 million low- and middle-income working Americans. In effect, the House-passed plan finances big tax breaks for the wealthy by asking the middle class to contribute more.

These two plans could not be more different, and the Center for Tax Justice recently launched a new tax calculator to help Americans see for themselves just how dramatic these differences are. 

But an important aspect that isn’t captured in the calculator is the impact on our lives—beyond each of our own pocketbooks.  In fact, given the revenue that would be lost under the House-passed plan in one year alone, there would be fewer dollars to invest in our state’s infrastructure for business and everyone’s wellbeing, educating our children, and feeding housebound seniors for example.  The loss of these investments must be part of our calculation of how each proposal will impact our lives.

On the heels of last week’s high-profile action in the US Senate on tax policies enacted by Presidents Bush and Obama, the US House of Representatives is voting today on multiple proposals designed to address the expiration of $4.5 trillion dollars in tax cuts in January 2013.  At stake is the fairness of our tax system and the ability to achieve a balanced approach to the ongoing fiscal challenges our country faces, one that includes revenue.

Read More

Following a suspenseful 51-48 vote this afternoon, the United States Senate succeeded in passing legislation proposed by Majority Leader Harry Reid that extends for one year Bush-era income and investment tax breaks for low- and middle-income families with incomes less than $250,000 per year originally set to expire on December 31, 2012, while allowing estate taxes to rise slightly, and tax breaks on income over $250,000 per year to expire after that date.  By allowing the expiration of tax breaks on income above this threshold, the legislation also raises almost $800 billion in revenues badly needed for supporting critical public investments like education, infrastructure, and the future solvency of Medicare.

Also contained in the legislation were extensions of key income security provisions signed into law by President Obama, including enhanced Child Tax Credits worth more $800 per family for almost 9 million working families, increased Earned Income Tax Credits that offset $500 in payroll taxes paid by 6.5 million working families, and the American Opportunity Credit, which assists millions of American college students.  Taken together, these tax cuts will assist more than 13 million working-poor and near-poor families (including nearly 26 million children) in 2013.

Despite the positive economic effects of putting money in the hands of those low- and middle-income families most likely to spend it, a minority of senators raised concerns about the economic impact of tax-break expirations on incomes above $250,000, claiming that this would “hurt job creators.”  Fortunately, these concerns are overblown.  First, people earning more than $250,000 still receive the same tax break everyone else does on every dollar of income up to this $250,000 threshold, and for every dollar someone earns over this threshold, their tax rate increases from 35% to 39.6%–hardly an impediment to hiring given the spectacular growth in wages by these earners over the last ten years.

Secondly, the overwhelming majority of individuals earning more than a quarter million dollars per year are not small business “job creators”—in fact, only 8% of all business owners filing through the Personal Income Tax (and thus affected by the tax increase) have incomes over $200,000, and of these only 2.5% of businesses in the United States have actual employees and would be affected.  In other words, there are just not that many of them, and they do not employ very many people.  In other words, the overwhelming majority of people affected by the expiration of these tax breaks aren’t “job creators.”

As a result, the negative economic consequences of eliminating these tax breaks should be minimal and far outweighed by the positive effects of putting more money in the hands of the low- and middle-income people who will spend it.

In passing these tax cuts, the US Senate took an important step forward in ensuring in fiscal responsibility and stronger, more equitable economic growth.

As the January 2013 expiration-date of the Bush tax cuts nears, policy makers in Washington are debating two different approaches that would provide dramatically divergent benefits for North Carolina’s middle and low-income residents, according to a newly released report from Citizens for Tax Justice (click on North Carolina to see the state-specific fact sheet). The first plan, proposed by President Obama, would cut taxes by $250 for North Carolina’s poorest 20% of residents and $930 for residents with incomes in the middle 20%.  The second plan, on the other hand, is supported by Congressional Republicans, and provides the overwhelming amount of benefits to the wealthiest 1% of North Carolina’s residents, who would a receive an average tax cut of $48,540 next year.  Under this plan, the poorest 20% would receive a tax cut of just $70 next year, and the middle 20% would receive just $850.

For more details on each plan, including specific tax changes and their impact on the Federal budget deficit, read the full report.