The President today made a slight change in his rhetoric on the tax cut issue, and I think it's an important one. When we talk about the so-called "middle class" tax cuts, we are not talking about taxes that benefit the middle-class. These are tax cuts that will let EVERY American taxpayer keep more of the first $250K of their income.
Now obviously, at some point, the higher rates on income after $250K will cost more than what they save on the first $250K. But follow me after the jump to see just how high the income chart you have to go to lose money on this deal.
I think this is a really important talking point when you're getting into Facebook wars with your asshole room mate from college or your Uncle with the NRA bumper stickers.
The mantra of the GOP is that the Democrats are paying "class warfare" by only rolling back tax breaks on the top income brackets. But that's simply not true. Even people who earn more than $250K per year will benefit from the Obama Tax Cuts because we all pay progressive tax rates. So regardless of your total income, you will pay less money on the first $250K that you earn.
To show how many people will get a net benefit on this deal, I crunched the numbers for a young major league baseball player. I went to this hand-dandy "Bush" tax cut calculator and entered the (estimated) numbers for Francisco Cervelli, the back up catcher on the Yankees. His baseball salary is approximately $411K. I assumed that he is married, with one minor child. I took 7% out for New York State income tax. And made reasonable estimates for his property taxes, dividend income and mortgage deduction. I assumed his (fictional) wife did not earn any taxable income for sake of simplicity.
If Congress lets the "Bush" tax cuts expire, he will owe $117,680.
If Congress instead renews them all, he will owe $109,812.
If Congress instead implements the "Obama" tax cuts, he will owe $111,029.
So the Obama tax cuts will save Franciso Cervelli nearly $1,200. Despite the fact that he will pay slightly higher taxes on his income after $250K.
So even some big league ball players will come out ahead on this deal.
I also ran the numbers on a person who makes $250K before taxes. Again, I made this person married with one child and ball parked the normal deductions. This time I made the person a renter, so there was no deduction at all for Mortgage Interest.
If Congress lets the "Bush" tax cuts expire, he will owe $57,846.
If Congress instead renews them all, he will owe $53,462.
If Congress instead implements the "Obama" tax cuts, he will owe $53,462.
So someone at the very top of the Obama-only tax brackets will save the same $4,384 under the Obama tax cuts that he would save if all of the Bush tax cuts were extended.
Somewhere beyond 411K, the wealthiest among us will pay somewhat more for the very comfortable lifestyles they live in this country. They can afford it.
Here is the tool I used:
"Bush" Tax Calculator