One of the most avoidable mistakes made in everyday political discourse is the regular misunderstanding of how marginal tax rates work. Thus I am very pleased to recommend Jamelle Bouie’s reminder at TAP today that under Obama’s proposal to let stand the Bush tax cuts for incomes under $250,000, everybody, including the very rich, would get a tax cut:
We talk about the Bush tax cuts as if there is one set that applies to people with income under $250,000 and another set that applies to people with income over $250,000. But that’s not quite the case. The “middle-class” Bush tax cuts apply to all taxable income under $250,000; if your taxable income is $1 million, then you’ll receive a tax cut on the first $250,000. Under the Obama plan, everyone receives a tax cut.
The argument is over whether there should be an additional tax cut for income over that amount. According to CTJ [Citizens for Tax Justice], the Republican plan would triple the tax cut received by the richest 1 percent of taxpayers. Obama says that this isn’t worth the expense, while Republicans disagree and will not pass middle-income tax cuts unless they’re joined by an extension for upper-income cuts. Whether or not you see the GOP’s position as justifiable depends entirely on whether you think the rich deserve an even larger share of the nation’s income.
Simple, eh? Yes it’s simple, but also powerful. Republicans constantly accuse Democrats of waging “class warfare” by limiting tax cuts to one group of people and excluding another. But that’s not how marginal tax rates work, and it’s far past time to call them on this very basic deception.