The Bush Tax Cuts And What They Mean For You
MELISSA BLOCK, host:
This week, Congress gets set to debate extending the Bush-era tax cuts. We thought we'd try to break down what those tax cuts mean, dollar-wise, for people at various income levels.
And we've brought in Clint Stretch to help us out. He's managing principal of tax policy at Deloitte Tax here in Washington. Thanks for coming in.
Mr. CLINT STRETCH (Managing Principal, Tax Policy Deloitte LLP): Well, thank you very much.
BLOCK: Let's start, Clint, with the middle class tax cuts and there's wide agreement on both sides that these tax cuts should be extended. But hypothetically, let's think about a family of median income and how much their tax bill would rise if that tax cut expired.
Mr. STRETCH: Sure. Let's look at a family of four with $70,350 of income, that's about median. When we talk about income, we're talking about adjusted gross income. Their taxes would go up by $2,600; that's about $50 a week. Now, when we talk about their taxes going up, we're talking about an assumption that the AMT, which is a big issue, is patched as it has been in the past, so we don't have those in all of our numbers.
BLOCK: The AMT, the alternative minimum tax.
Mr. STRETCH: The alternative minimum tax is assumed to be fixed so that it's not imposed on another 25 million people.
BLOCK: Okay, so that's a hypothetical. Of course, again, nobody - President Obama, Republicans, Democrats - nobody wants to see that middle...
Mr. STRETCH: That's right.
BLOCK: ... class tax cut expire.
Mr. STRETCH: Thats right.
BLOCK: So the fight is about those with income above $200,000 for single filers, $250,000 for couples. Here's where things get interesting, though, Clint. Because under President Obama's plan, a family with income at that level, say, $250,000, would not, as I understand it, see their taxes go up. They may actually see their taxes go down.
Mr. STRETCH: That's right, 'cause the president proposes to expand by a little bit the rate brackets at 28 percent, so as to be sure to get no families that earn less than 250,000 caught in that trap. And so, if a family has higher itemized deductions or something like that, they may actually see a little benefit as compared to having the tax cuts simply expire.
BLOCK: So those savings, by expanding the 28 percent bracket, might offset any increase in taxes at the upper, upper limit.
Mr. STRETCH: Well, that's right. That savings flows through all the way up the income brackets. And so it's a little bit of cushion for high income people.
BLOCK: Okay, so under President Obama's plan, Where is the tipping point at which people would definitely end up paying more in taxes?
Mr. STRETCH: Well, it comes pretty quickly. This is - we're talking about $500 perhaps of savings on these rate brackets. And so, you know, by 270, $300,000, clearly youre going to see increases in virtually any case.
BLOCK: Well, let's take an example then of a family, say, that has $325,000 in income. What would happen with their taxes under President Obama's plan?
Mr. STRETCH: Right. Well, if that's their adjusted gross income under President Obama's plan, they would see an increase of $5,400.
BLOCK: How many people are we really talking about here, Clint? I mean, when you think about the tax cuts expiring on the upper income levels, marginal tax rates, only on that income above that level, how many people are we talking about?
Mr. STRETCH: You're talking somewhere in the order of three percent of the population at most, and that's for all of the upper income people. There's some talk about raising rates just for the people over a million dollars and that's probably three-tenths of one percent of the population, a very small group.
BLOCK: Mm-hmm. When we're talking about these upper income earners and how much is at stake here, the cost to the Treasury if those tax cuts were allowed to expire under President Obama's plans?
Mr. STRETCH: Well, for just the high income people, that would be about $700 billion. If you're talking about the total tax cuts for everybody, that's a $4 trillion dollar issue. By extending either just the middle class cuts or all the tax cuts, we are really getting committed to some very serious deficit reduction activity out into the future, which is going to include Social Security and Medicare.
BLOCK: To make up the cost of the lost...
Mr. STRETCH: Absolutely.
BLOCK: ...revenues from taxes.
Mr. STRETCH: We're running disastrously high deficits and if you don't raise taxes, then the other place to go is really big spending cuts.
BLOCK: Clint Stretch, thank you so much.
Mr. STRETCH: Well, it's been a pleasure. Thank you.
BLOCK: Clint Stretch is managing principal of tax policy at Deloitte Tax here in Washington D.C.
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