Taxes and tax effects from the tax cut extensions

Update: (hat tip Robert Waldmann)   Senate.gov voting record on middle class tax cut bill

Excerpted from Linda Beale’s piece (7/25) on the numbers for the action taken by the Senate:

…After threatening to filibuster the Obama tax cut proposal, Mitch CcConnell pulled back.  See Lori Montgomery, McConnell pulls back from filibuster on Senate tax-cut vote, Washington Post, July 25, 2012. The Republicans want to pass a deficit-expanding tax cut for the wealthiest Americans who have garnered the most from this lopsided economy in which companies lay off workers to diminish service but achieve ever greater (short-term?) profit margins for those at the top.

(Aside:  That’s not the only way that megacorporations are trying to syphon off all the productivity gains for the few at the top.  See the story about a bank analyst’s conclusion that Wells Fargo was making more money for shareholders by providing lousier service to its customers.  Nathaniel Popper, Bank Analyst Sees No Payoff in Customer Friendly Focus, New York Times (July 24, 2012).)
If the Bush tax cuts were to be extended without modification (as the GOP proposal would have it), the average reduction in taxes for Americans in the three lower quintiles (who make less than 75 thousand a year) would be considerably less than $1000.  See Citizens for Tax Justice, U.S. Taxpayers and the Bush Tax Cuts: Obama’s Approach vs. Congressional GOP’s Approach (July  2012).  So the typical American who earns between 40 and 50 thousand dollars a year will get less than a thousand dollars from an extension of the Bush tax cuts.

Compare the result for the wealthiest Americans under the GOP proposal. 

Another year of the Bush tax cuts for the wealthiest taxpayers in the richest 1% would give them an average tax cut of about $71,000.  See Citizens for Tax Justice, U.S. Taxpayers and the Bush Tax Cuts: Obama’s Approach vs. Congressional GOP’s Approach (July  2012).   That means that the Republican plan gives a 7000% larger tax cut to the wealthy than to those ordinary folk making 40-50 thousand.

Note that the wealthy still get a tax cut of about $20,000, even under Obama’s plan to cut the additional breaks at $250,000.  That’s because of the way the graduated income tax brackets work.  Everybody–rich or poor–is taxed at the 10% rate on the first $17,400 of income in 2012.  Everybody, rich or poor, is taxed at the 15% rate on any income they earn above $17,400 up to $70,700.   The rate increases to 25% for income in excess of $70,700 up to $142,700 (already in the upper middle class quintile) and to 28% for income above that up to $217,m450, with the rate going to 33% on the excess up to 388,350 (obviously now we’re talking about only the marginal income earned by the wealthy) and then 35% on the excess above that, to whatever millions or billions it may reach.  Accordingly, the very wealthiest millionaries would get the same tax break ordinary folk do on the income they receive in the lower rate brackets up to $250,000.  And as a result, only 1.9%–the very few richest Americans in the ultra-elite–would have less of a tax cut than otherwise under the Obama proposal.

from cross post with ataxingmatter