About Obama’s ‘Middle-Class’ ‘Tax Cut’ For ‘Families’
I awoke to a report this morning telling me that the President was off to see our neighbors in Iowa. The mission? Reaching out to the "middle class" in order to "promote his call yesterday to extend the Bush-era tax cuts for a year for families earning less than $250,000 annually."
(Well, the mission is also this: "Obama won Iowa in 2008 by a decisive 9.54 percentage points. Today, the race in Iowa is too close to call, a rolling average of polls compiled by RealClearPolitics.com shows.")
This phrase was a crappy way to start the day: "for families earning less than $250,000 annually." There's a lot that's arguably—and inarguably—incorrect about it, but apparently it's what we in the media have agreed on.
Boston Globe: "President Obama called on Congress Monday to extend Bush-era tax cuts for middle-class families making less than $250,000 a year, but not for the wealthiest Americans...."
CNN: "President Barack Obama revitalized his push for holding down middle-class tax rates Monday, calling on Congress to pass a one-year extension of the Bush-era tax cuts for people earning less than $250,000 a year."
AP: "tax cuts for only low and middle income earners while allowing taxes to increase for families that make more than $250,000 a year."
Wall Street Journal: "President Barack Obama proposed a one-year extension of Bush-era tax cuts for families earning less than $250,000 a year but would let them rise for wealthier Americans," in an article entitled "Obama to Push Extension of Middle-Class Tax Cuts."
As New York Magazine's Dan Amira put it, "Every Single Media Outlet Is Misreporting Obama's Tax Proposal." Taking a shortcut would be a nicer way to frame it, but it still misses a lot. Let us count the ways.
1. "Middle-class." $250k isn't "middle class." It's just... not. Even Obama is saying it's for 98 percent of Americans, but this is somehow lumped into "middle class." I suspect part of the problem is that we don't have a good rhetorical device for people with incomes in the low six figures. They're not exactly middle class, but they're not "rich," either—in college, I recall friends whose families made too much to get financial aid, but not enough that $50k a year wasn't a thing. (That's what a lot of Elizabeth Warren's work has emphasized: how the seemingly comfortable middle class are not necessarily comfortable.)
The tax cuts may be "for" the middle class, in the same way that birthday cake is "for" the birthday boy/girl. But everyone at the party gets to eat it.
2. "Families." This is a pretty minor complaint, but still. Under Obama's plan, there would be changes for anyone who files as single (yes, there are single people out there).
"And also for those who haven't found their soulmate—just be yourself—and make less than $190k" isn't as oratorically satisfying, but just pointing it out.
3. Anything about tax cuts for people making "less than $250k." This one's the doozy, because that's not how marginal tax rates work. It's the sort of thing that irritates wonks like Kevin Drum: "I'm trying to figure out if I think it's mostly a pedantic complaint or one with real substance." It should irritate everyone; it's one with real substance.
The GOP wants taxes to stay where they are, and were under George W. Bush. If Obama gets his way, they'll return to pre-Bush levels on tax brackets above $250k. Right now the top bracket is 35 percent; under Obama, it would skip from 33 percent to 36 percent, and the 39.6 percent bracket would return. If your household earns $275k, that last $25k gets taxed at 36 percent instead of 33 percent.
But that's not the only difference between pre- and post-Bush tax brackets. Before GWB, the lowest tax bracket was 15 percent. In 2001, anything at or under $57,267 (in 2012 dollars) was taxed at 15 percent. In 2002, anything at or under $14,967 (again, inflation-adjusted) was taxed at 10 percent. The 15-percent bracket applied only to income above $14,967 and up to $58,246.
Again, this is a tax cut for everyone, but for obvious reasons it represents a greater percentage for the middle class, however you want to define it.
Using the chart above and figures from the Tax Foundation, I did some (very rough) calculations for a married, joint-filing couple making $400k a year in 2012 dollars for 2001, 2011, and 2013: a family in the highest bracket, but not by much.
By my calculations, the family would have paid an average of 30 percent of their income in 2001; 27 percent in 2011; and 28 percent in 2012. In dollar terms, that's about $120k, $109k, and $113k. In real life it would be different, but that should give you a general sense of how it would effect people who are, let's say, rich but not wealthy.
If you think about it, it makes sense. Pre-Bush, tax rates were higher at both the highest income levels and the lowest. (Obviously I'm not accounting for deductions, credits, and whatnot.) Under Bush, tax rates were lower at the highest and lowest income brackets. Under Obama's plan, tax rates would be higher at the highest brackets, but not higher for the lowest bracket. So rich families would be paying more than they did under Bush for all their money above $230,500, but they'd still have that 10 percent bracket.
This is how something as seemingly simple as "middle class tax cut" is more complicated than the rhetoric implies. And it is a substantiative issue. There's anecdotal evidence, at least, that some high earners are seeking to get their incomes under $250k, though I can't possibly imagine there are that many people who are that serious about it. It doesn't take terribly sophisticated math skills to realize that giving up tens of thousands of dollars in income because of a marginal tax increase of one to 4.6 percent is effective as anything but a general protest.
Drum wants to make it an ideological issue:
So the question is: what's the best way to describe this? The Obama way ("keep the tax cuts for anyone making less than $250,000") is more populist and a lot easier to understand. The technically correct way is more complicated, but it reduces the alleged class warfare angle a bit. Obama isn't taking away all the tax cuts the rich got from Bush, just some of them.
It's a fair enough question for him, and for Democrats; he's a partisan opinion journalist. But it's an odd question to be asking of general press coverage. It's not just a partisan issue, or even a 2012 campaign issue. It's also a matter of understanding how you are taxed. No matter what happens to the Bush tax cuts, the way they're framed effects how people understand the one great inevitability of American life.
Photograph: The White House