While I’ve gone over how the Democratic and Republican tax plans scheduled to get a vote in the Senate this week are in many ways similar, I did not identify the points of difference, which are substantial in their own way, particularly in the direction that money would flow under the two plans. In particular, as Jonathan Weisman points out today, the Democratic plan picks up four tax breaks that target the lower and middle classes, held over from the stimulus, and extends them, while the Republicans allow them to expire.
In addition, the Democratic plan would raise the capital gains and dividend tax rate from current law, while the Republican plan would freeze them in place. (A previous version also raised the estate tax, but Democrats took that out of the bill). So you really do have a difference between tax cuts focused on the poor versus tax cuts focused on the rich.
Republicans say the tax breaks for lower-income families — passed with little notice in the extensive 2009 economic stimulus law — were always supposed to be temporary. But President Obama had made them a priority in 2009 and demanded their extension in 2010 as a price for extending the Bush-era tax cuts for two years, and both the White House and Senate Democrats are determined to extend them again.
That sets up a potentially tricky issue for Republicans. They have said they do not want taxes to go up on anyone while the economy struggles to gain altitude, but under their plan, written by Senator Orrin G. Hatch of Utah, the senior Republican on the Finance Committee, about 13 million families would see their tax refunds reduced, and some would see their taxes increase.
“Senator Hatch’s amendment would extend tax breaks for the top 2 percent of Americans,” Senator Harry Reid of Nevada, who leads the Senate’s Democratic majority, said this month. “But it fails to extend a number of tax cuts that help middle-class families get by in a tough economy.”
This is all true, but it is a matter of degree. The extension of the child tax credit, patch on the so-called “marriage penalty,” expanded Earned Income Tax Credit and the tuition tax credit costs the federal government $28 billion in 2013 (about $11.1 billion just for the expanded EITC and child tax credit). But the extension of all the Bush tax cuts up to $250,000 in income, which both parties agree on, costs the government $272 billion.
Republicans have whined that the stimulus tax cuts for the poor and middle class were supposed to be temporary, but the Bush tax cuts had a sunset on them too, so you can make the same argument. The Senate Democratic plan pays for those stimulus tax cuts and then some through the changes to the capital gains and dividends tax, as well as a business tax credit that Senate Democrats would limit. This all brings in an extra $82 billion into the government coffers.
So on a limited level, the choice tomorrow in the voting in the Senate will be between a plan that distributes wealth downward and one that distributes it upward. The fact that the mass of tax cuts in the plan have agreement between the two parties muddies this message.
UPDATE: Sahil Kapur brings up another point, that taxes on wage earners, all of them, will go up next year, because nobody wants to extend the payroll tax cut, which will expire at the end of the year. That will mean about $110 billion in taxes on wage earners in 2013, which is not counterbalanced by the middle class tax cuts Senate Democrats are touting.