Obama: Cutting Taxes for the Rich

So Obama wants to let the "Bush tax cuts" expire on the rates above $250,000, and now there's all the discussion on whether it's good/bad to raise taxes on the rich, accusations of class warfare, etc. But that would actually be a tax cut for the rich...

The "Bush tax cuts" were temporary tax cuts set to expire in 2010. If they expired, you'd pay more taxes now, but it wouldn't be quite right to say "they raised my taxes". Remember when Bush also did a 1-year tax cut/refund in 2008 to help stimulate the economy? When you didn't get that same cut the next year, nobody said "Congress raised my taxes." There's no reason to differentiate that from the bigger "Bush tax cuts." It just feels different because 10 years is a long time.

Those tax cuts did not expire in 2010 like they were supposed to. That's because Obama passed a new law to keep them in place for 2 more years, which means Obama gave all of us a big tax cut.

Now it's set to expire again, and Obama wants to pass another law to keep them in place for all income under $250,000. Again, that in itself would be Obama cutting taxes since these temporary cuts were designed to end. Understood properly, not only is this a tax cut rather than a tax hike, but it is also a tax cut for everyone, including the rich. That's because our tax rates for different income brackets are marginal.

As a simple hypothetical example: pretend we have an income tax system of 10% on income up to $10,000 and 20% on everything over that. That doesn't mean that the moment you make $10,001, you now pay 20% on all your income. It means you pay 10% on the first $10,000 of your income, and 20% only applies to your last $1. Therefore, passing a law that cuts taxes on all income under $250,000 is cutting taxes for everyone who makes over that amount as well.

It's funny actually. With the tax policies proposed by each side, both the Democrats and Republicans are trying to cut taxes for everyone. They are only actually arguing about how big of a tax cut to give to the rich.

* mostly stolen and expanded from here.