How Much Income Taxes Could Rise: A Breakdown Of The Options : It's All Politics As political leaders try to reach a deal to avoid automatic spending cuts and tax increases at the year's end, income tax rates are a major sticking point. President Obama wants to raise taxes for some; Republicans don't want any hikes. But if nothing is done, rates could go up across the board.
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How Much Income Taxes Could Rise: A Breakdown Of The Options

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How Much Income Taxes Could Rise: A Breakdown Of The Options

How Much Income Taxes Could Rise: A Breakdown Of The Options

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  • <iframe src="" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
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This is MORNING EDITION, from NPR News. I'm Renee Montagne.


And I'm David Greene. Good morning.

Congress and the White House continue their negotiations aimed at avoiding a combination of massive tax increases and spending cuts set to take effect at year's end.

MONTAGNE: That combination could send the U.S. back into recession. It's a hazard Congress and the White House created last year to focus their minds on deficit reduction. As we heard elsewhere in the program, the administration's lead negotiator, Treasury Secretary Tim Geithner, met with congressional leaders from both sides of the aisle yesterday, looking for an agreement.

GREENE: For his part, Speaker John Boehner declared yesterday that there has been no substantive progress. Perhaps the most important sticking point is over income tax rates. We've asked NPR's John Ydstie to strip away the politics and tell us just how much various proposals might raise your tax bill, and how much they would ease the deficit.

JOHN YDSTIE, BYLINE: President Obama has proposed that top tax rates for well-off Americans rise to their levels before the Bush-era tax cuts. But he wants to keep the Bush tax cuts for the middle class. So, income tax rates for couples making less than $250,000 and individuals making less than $200,000 would remain right where they are.

What would it mean for you? Well, if you're among the well-off and earn more than those amounts, the money you make above those levels would be taxed at 36 and 39.6 percent - up a few points from where they are now, and exactly where they were during the Clinton administration. For the top 1 percent of taxpayers, this change would boost their tax bill a lot.

DONALD MARRON: And that tax increase would amount to something in the neighborhood of $120,000.

YDSTIE: That's Donald Marron, co-director of the Tax Policy Center, which has crunched lots of numbers on the tax effects of the fiscal cliff and the various proposals to avoid it. Len Burman - who used to run the Center, but now is a professor at Syracuse University - says allowing the Bush tax cuts to expire for the well-off would put a dent in the deficit.

LEN BURMAN: Raising the tax rates to basically the pre-Bush levels for the high income people would raise about $850 billion dollars over 10 years.

YDSTIE: But would that be a bulldozer-size dent, or a baseball-size dent in the deficit?

BURMAN: It's significant. I mean, but we're looking $10 trillion-plus in deficits over the next 10 years. So this is less than 10 percent of the total.

YDSTIE: The president would reduce the deficit another 5 percentage points through his proposal to reduce the value of tax deductions for the wealthy. But what if policymakers can't reach an agreement, and we go over we go over this fiscal cliff you're hearing so much about? Well, tax rates would go up across the board. The tax policy center says about 90 percent of Americans would see their tax bill increase. Here's Donald Marron again.

MARRON: For a middle-income household, this increase would be around $2,000. For a low-income household, it would be $400.

YDSTIE: While that's not a pleasant thought, allowing the Bush-era tax cuts to expire for everyone would cut deficits significantly, says Len Burman.

BURMAN: We'd raise $2.2 trillion in income tax revenues over the next 10 years and $430 billion in estate tax revenues.

YDSTIE: That would cut projected deficits by about 25 percent over the next 10 years, a much more sizable chunk, but still not enough to solve the deficit problem. Of course, as we've all heard, the shock to the economy of the abrupt tax hikes and spending cuts from the fiscal cliff would very likely cause the economy to plunge back into recession. That's really why they call it the fiscal cliff.

Republicans say hiking rates for anyone is the wrong approach. They want to extend the Bush tax cuts for everyone for one more year. That would mean a $400 billion boost to next year's projected deficit. But during the year, Republicans say Washington could work on tax reform and entitlement reform and close the budget gap for the long term.

Glenn Hubbard, dean of the Columbia School of Business and an adviser to Mitt Romney, agrees. He says raising rates is a bad idea.

GLENN HUBBARD: I'd rather see us talk about tax reform - that is, have the Congress say OK, here's the dollars that we need to raise in revenue. Now let's talk about a better tax system.

YDSTIE: We'll talk more about the best approach and the politics of a deal later today on ALL THINGS CONSIDERED.

John Ydstie, NPR News, Washington.

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