CHN: The House Says Yes to Extra Tax Breaks for the Wealthiest; the Senate Says No; House Also Votes for Fast Track Procedures to Slash Taxes by Trillions
Article from the August 7, 2012 edition of the CHN Human Needs Report:
If the Bush-era tax cuts on income over $250,000 are allowed to expire, married couples with income in the $1 – 2 million income range will still receive about $8,800 in income tax cuts in 2013. But they won’t receive more than $66,000 – the amount they would receive if the tax cuts for income above $250,000 are extended. The House voted on August 1 for those couples to keep their $66,000. The Job Protection and Recession Prevention Act of 2012 (H.R. 8), sponsored by House Committee on Ways and Means Chairman Dave Camp (R-MI), passed largely along partisan lines (256-171), with only 1 Republican voting against the bill and 19 Democrats voting for it.
The House bill was notable not only for what it would give to the rich, but what it would take away from low- and moderate-income families. H.R. 8 would end the improvements in the Child Tax Credit, Earned Income Tax Credit, and American Opportunity Tax Credit that were enacted as part of the 2009 economic recovery legislation. Ending these provisions will raise taxes on low-income families, even as hundreds of billions of upper-income tax cuts are preserved. For example, a full-time minimum wage-earning parent with two children would see her family’s Child Tax Credit reduced by about $1,500. Continuing the Child Tax Credit and EITC improvements would help 25.7 million children in 13 million families, according to Citizens for Tax Justice, with an average benefit per family of $843.
The week before, the Senate had passed legislation continuing tax cuts on income up to $250,000, including the low-income tax credits ended in the House bill. The extra tax cuts on higher incomes would be left to expire.
Contrary to expectations, Senate Republican leaders agreed to allow the Democratic and Republican tax cut bills to come up for a vote, without subjecting them to procedural hurdles that could only be overcome with 60 votes. The Middle Class Tax Cut Act (S. 3412), sponsored by Majority Leader Harry Reid (D-NV), was thus able to pass with a vote of 51-48. All Democrats and Independents voted for the bill except for Senators Lieberman (I-CT) and Webb (D-VA). All Republicans opposed it.
Now that both House and Senate have taken votes members can campaign on, Congress recessed for the month of August. If Congress does not resolve the differences between the two bills, all the tax cuts will expire at the end of December. Final decisions about the tax cuts are likely to be made after the election, combined in a negotiation that prevents or lessens the impact of the across-the-board (sequestration) cuts slated to begin in January 2013. (See appropriations article in this issue.)
Choosing to continue the extra tax cuts for the wealthiest two percent is costly. Over ten years, these tax cuts will cost over $1 trillion, counting higher interest payments on the money borrowed to keep those tax cuts coming. Discontinuing them can free up funds needed to invest in jobs and economic security and to reduce the deficit. Since the public believes the wealthiest Americans should pay more in taxes, Republican proponents of continuing the high-end tax cuts have criticized the Reid bill (and the President’s very similar proposal) as being a tax increase on small business. Although small businesses often pay their taxes through the individual income tax (and not through the corporate tax code), only 2.5 percent of all small businesses have incomes high enough to see any increase if tax cuts for income above $250,000 were discontinued.
The Bush tax cuts, begun in 2001, have provided outsized benefits to the richest Americans. People with annual incomes above $1 million have received more $1 million in tax cuts over the past 9 years; those with incomes between $200,000 and $500,000 averaged $74,000 in tax cuts over the same period.
That is not enough for the enthusiastic tax cutters in the House. In addition to the $3.8 trillion cost of extending all the Bush tax cuts over 10 years, the House passed H.R. 6169, Pathway to Job Creation Through a Simpler, Fairer Tax Code Act of 2012. This bill would set up a fast track process that would push through drastic changes in the tax code. The bill gives instructions to the House Committee on Ways and Means to produce legislation to create two individual income tax brackets, at 10 percent and 25 percent. Corporate income taxes would also be reduced to a maximum of 25 percent, and the Alternative Minimum Tax (AMT) would be eliminated. The combined cost of these extreme steps would exceed $4 trillion over ten years, with the benefits once again falling very disproportionately to the highest-income taxpayers. While some of these mammoth tax cuts are to be paid for by reducing or eliminating other tax breaks, the instructions do not specify which ones. A new analysis by the Brookings-Urban Institute Tax Policy Center of a slightly less extreme Mitt Romney tax plan demonstrated that it is “not mathematically possible” to replace the revenues lost from slashing income tax rates without shifting the tax burden from the rich to middle- and low-income people. The Romney plan, which cuts income tax rates slightly less than H.R. 6169 would require, will result in a one-year revenue loss of $360 billion. About two-thirds of tax expenditures, such as the home mortgage deduction, low-income tax credits, charitable deductions, employer-provided health care deductions, etc., would have to be eliminated to pay for the rate reductions. Since these tax expenditures were designed primarily to help the middle class (or lower), it is impossible to cut them so massively without requiring the middle class to pay more. In this scenario, a family earning $75,000 – $100,000 would pay $884 more in taxes, while a family earning over $1 million would see their taxes drop by more than $87,000. Since H.R. 6169 slashes rates even more deeply, the inequities would be more pronounced than this analysis shows. The bill passed 232-189; no Democrats voted for it; 3 Republicans opposed it.