$28 billion. That’s the difference, in 2013, between the Democratic and Republican tax plans on the Bush tax cuts, which shows the narrowness of the debate.
Republicans want to extend all the Bush tax cuts permanently. Democrats have countered with a bill, which will get a vote in the Senate next week, that would extend the tax cuts only on the first $250,000 of income for one year. Since only the 2013 tax year would be affected, the Joint Committee on Taxation ran the one-year costs. It would cost the country $300 billion in revenue to extend all the Bush tax cuts. It would cost $272 billion to extend up on the first $250,000 in income. The difference of $28 reflects the difference between the two plans.
That’s just a one-year cost. Over ten years, the difference between extending all the tax cuts and just the first $250,000 of income is around $800 billion, as Chuck Schumer was sure to point out in a statement. That’s significant, but it does not cover more than one year of the current annual deficit.
Republicans have used the relatively paltry savings to criticize Democratic strong-arm tactics on the tax cuts:
Democrats have threatened to let all the Bush tax cuts expire on schedule in December unless Republicans abandon their push to preserve the cuts for taxpayers in the top brackets. With the release of the new cost estimates, Sen. Orrin Hatch (R-Utah) questioned the wisdom of that position.
“The American people deserve better than to have the President and his allies threaten to melt down our economy for what amounts to less than three days of federal spending,” said Hatch, the senior Republican on the Senate Finance Committee. “With 41 consecutive months of unemployment over 8 percent, it just makes sense to extend this tax policy for a year so we can enact meaningful, pro-growth tax reform.”
But what this actually shows is the narrowness of the tax debate in Washington. Democrats are willing to meet Republicans far more than halfway on taxes. They agree that nobody making up to $250,000 a year, a princely sum that’s five times the median wage, should see a tax cut. That means that Democrats and Republicans agree on the proper tax rates for 98% of the country.
Senate Democrats also included a series of other one-year tax changes in their package. They would extend the college tuition tax credit, and expansions of the child tax credit and the Earned Income Tax Credit. They would also increase the top rate on capital gains and dividends to 20%, up from 15%, and they would return the estate tax to its 2009 level, which is far lower than the Clinton years but higher than today (a 45% tax rate on every dollar above $3.5 million on estates). In addition, the bill would patch the alternative minimum tax for 2012, an annual ritual, and continue an investment tax for small businesses. So the increases to the dividend and estate taxes pay for a lot of these new tax breaks. And these changes do represent a break with Republicans, as they would make the tax code more progressive and value the middle class over the wealthy. But the overwhelming majority of the revenue in the tax code is lost from these Bush tax cuts, and on that front, Democrats and Republicans have fairly substantial agreement, even if both sides don’t want you to think that.