Tax cuts bring up issue of widening income gap in U.S.

Congress

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Kai Ryssdal: Members of the lame-duck 111th Congress have gathered in Washington for a final few weeks of legislating. They'll wrap up whatever loose ends there are -- the loosest of which are the Bush-era tax cuts.

There are technically two sets of tax cuts passed in 2001 and 2003. Both of 'em expire in about six weeks, right at the end of the year. President Obama and many Democrats want to make lower rates permanent for low and middle-income families. But they want to let the cuts for families earning $250,000 a year or more expire.

Other than that it's a nice round number -- a quarter million dollars -- why'd they draw the line at $250,000 a year anyway?

Our Washington bureau chief John Dimsdale explains.


John Dimsdale: Every taxpayer benefited from the Bush cuts. For most middle income Americans this year, those tax cuts will add less than $1,000 to their after-tax income, according to the Tax Policy Center. But for people in the top 0.1 percent of income -- those who take in more than $2.2 million a year -- the Bush tax cuts mean an average half-million dollar windfall. Cornell economics professor Robert Frank says the Bush tax cuts increased the nation's income inequality.

Robert Frank: The higher you go up the income ladder, the bigger the savings are for the wealthy taxpayers.

That's because income taxes take a relatively small bite from middle income families. They pay proportionally larger payroll taxes for Social Security and Medicare, as well as sales taxes and property taxes. Wealthy people pay a bigger percentage in income and capital gains. And those were the rates that went down during the Bush years.

John Podesta, the president of the Center for American Progress says the Obama administration is trying to reverse favoritism for the rich.

John Podesta: President Bush's obsession with just taking care of the very wealthiest Americans proved not only to be unfair, which I think it is, but it proved to be weak in terms of the economy it actually produced.

Income for the very wealthy went up 6 percent or more every year during the Bush years, while he says middle income earners lost ground. Economist Martin Sullivan with Tax Analysts says by increasing income tax rates on the families earning more than $250,000 a year, President Obama keeps tax cuts for 98 percent of all families and raises $700 billion in revenue over the next 10 years.

Martin Sullivan: I think what he is looking at is an enormous budget deficit and he is saying how can we best handle this? And when you look on tax side, those who would suffer comparatively the least are the wealthy.

Sullivan says extending the tax cuts for the rich will widen an income gap that's been growing for 30 years.

In Washington, I'm John Dimsdale for Marketplace.

About the author

As head of Marketplace’s Washington, D.C. bureau, John Dimsdale provides insightful commentary on the intersection of government and money for the entire Marketplace portfolio.

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