With all of the panic over the scheduled expiration of the Bush Tax cuts in 2012, the so called “fiscal cliff”, it is helpful to consider the actual dollar cost of how this will impact various income groups. It is true that a majority of Americans will see their taxes rise in 2013, but the largest increases are certainly at the top. The same top who enjoyed the biggest tax savings over the past 10 years.
The average estimated increase in federal taxes for the top 5% of income earners (those earning $204K+ a year) is 5.2% or $14,871 more a year. Those in the top 1% (earning $506K+) a year will see an increase of 7.2% or $120,537 more in tax a year. While the top 0.1% of income earners (those making $2.6m+a year) will also see 7.2% or $633,946 more in tax a year. Yes these numbers are significant, but not fatal.
My thought would be that since tax cuts coupled with out of control spending, both caused the current crippling debt drag, then the Bush tax cuts should be allowed to expire as originally agreed from the outset and the increased tax revenue should be channeled directly to debt reduction, not to afford further spending. Consider that it took 200 years for the US to amass its first trillion dollars of debt, and it has taken less than 1 year to accumulate the latest trillion(taking Federal debt from 15 to 16 trillion over 286 days) today. Clearly this fiscal fire is out of control and requires sober, serious measures.
Chart and data sourced from the Tax Policy Center via NPR
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Just a thought…what if Congress just lets the US go over the spending cliff. Democrats will get the tax increase they want and Republicans will get the spending cuts they want. Both will deny responsibility and say it was not their fault that this happened. The US will go into recession but was a Congressman ever fired for having the US in recession? The US budget will momentarily look better because there will be more revenue and less spending. Both parties can rationalize to themselves that the crisis gives political opportunity. The Democrats can then say let’s increase spending and the Republicans can say let’s cut taxes and we start again.