- Days left

Obama's Tax Cut for the 1% (and Everyone Else, Too)

×
Obama tax cuts
On Monday, President Obama suggested a tax break that will benefit America's wealthiest citizens -- as well as some of its poorest. He proposed that the Bush-era tax cuts, which are set to expire on January 1, 2013, be extended for a year for the first $250,000 of taxable income. As for the Bush-era cuts affecting taxable income over $250,000, he suggested that they be allowed to expire.

This isn't the first time that Obama has proposed this compromise; he has already proffered this suggestion twice in his presidency, and it has already been rejected twice. In both cases, opponents described Obama's proposal as "class warfare," and suggested that he was pitting the poor against the rich. And, as media outlets across the country have reported on Obama's most recent resurrection of the policy, the same old attacks have reared their head.

The odd thing is, as "class warfare" goes, Obama's proposal would actually give the wealthiest Americans a pretty solid tax break. Under the plan, a single filer making $250,000 a year or more would keep the $6,021.36 break that they got from President Bush's 2001 and 2003 tax cuts. On any taxable income over $250,000, Bush's breaks would expire and taxes would go up.

If Obama's proposal will benefit all taxpayers, why are reporters suggesting that it is only giving a cut to the middle class? In New York magazine, Dan Amira suggests that the problem lies with Obama. Facing a wealthy opponent, the president -- Amira argues -- is playing up the benefits for the middle class in an attempt to force Mitt Romney into a corner where he has to defend tax cuts for the rich.

Amira's theory is good, but there's another possibility. When discussing the tax code, most analysts and pundits -- not to mention average citizens -- focus on the highest rate that an individual pays. One rarely hears about the fact that everybody pays only 10% tax on their first $8,700, 15% on everything between $8,701 and $35,350, and so forth. In other words, a millionaire pays the exact same amount in taxes on that piece of their income as someone who makes $35,350 per year...or $85,000, or $150,000. (Before deductions, of course.)

It's not hard to see why tax issues are drawn along wealth lines -- after all, creating barriers between the rich and the middle class makes for good headlines and hot political battles. In truth, though, the line isn't between cutting taxes for the rich and cutting them for the middle class; it's between cutting taxes for the rich, and cutting taxes for the rich more.


Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at@bruce1971.

Increase your money and finance knowledge from home

Timing Your Spending

How to pay less by changing when you purchase.

View Course »

Economics 101

Intro to economics. But fun.

View Course »

TurboTax Articles

What is IRS Form 8824: Like-Kind Exchange

Ordinarily, when you sell something for more than what you paid to get it, you have a capital gain; when you sell it for less than what you paid, you have a capital loss. Both can affect your taxes. But if you immediately buy a similar property to replace the one you sold, the tax code calls that a "like-kind exchange," and it lets you delay some or all of the tax effects. The Internal Revenue Service (IRS) uses Form 8824 for like-kind exchanges.

What are ABLE Accounts? Tax Benefits Explained

Achieving a Better Life Experience (ABLE) accounts allow the families of disabled young people to set aside money for their care in a way that earns special tax benefits. ABLE accounts work much like the so-called 529 accounts that families can use to save money for education; in fact, an ABLE account is really a special kind of 529.

What is IRS Form 8829: Expenses for Business Use of Your Home

One of the many benefits of working at home is that you can deduct legitimate expenses from your taxes. The downside is that since home office tax deductions are so easily abused, the Internal Revenue Service (IRS) tends to scrutinize them more closely than other parts of your tax return. However, if you are able to substantiate your home office deductions, you shouldn't be afraid to claim them. IRS Form 8829 helps you determine what you can and cannot claim.

What is IRS Form 8859: Carryforward of D.C. First-Time Homebuyer Credit

Form 8859 is a tax form that will never be used by the majority of taxpayers. However, if you live in the District of Columbia (D.C.), it could be the key to saving thousands of dollars on your taxes. While many first-time home purchasers in D.C. are entitled to a federal tax credit, Form 8859 calculates the amount of carry-forward credit you can use in future years, not the amount of your initial tax credit.

What is IRS Form 8379: Injured Spouse Allocation

The Internal Revenue Service (IRS) has the power to seize income tax refunds when a taxpayer owes certain debts, such as unpaid taxes or overdue child support. Sometimes, a married couple's joint tax refund will be seized because of a debt for which only one spouse is responsible. When that happens, the other spouse is said to be "injured" and can file Form 8379 to get at least some of the refund.