Barack Obama surely does not think the Republican House is going to agree with him suddenly and pass an extension of the Bush tax cuts on dollars earned (not people, dollars earned; see my explanation of why) below $250,000 a year. But he’s right to keep this issue front and center. I hope that this is the first salvo in what will be an ongoing attempt to focus Americans on the tax choices they face, and to educate people a little bit about how taxes are actually paid in this country. It’s a debate he can win hands down, and one that will only tilt the polls even more in his direction and make Mitt Romney look more plutocratic than he already does. But he needs both more facts and more fire.
First, let’s have a few facts, because they help explain why continuing tax cuts for middle-income people is easier to justify. You can find the rates for 2012 here. You can find the rates for all of American history, all the way back to 1913, when the federal income tax was introduced, up to 2011, here. A person (a single filer) who was making $40,000 in 2000, the last year of the Clinton rates, and who might be making $50,000 now, has experienced very little tax savings. She’s actually paying more taxes in 2012, by a few hundred bucks, but that’s partly because her income went up. The percentage of income she’s sending to the IRS has decreased a bit.
Now imagine someone who made $250,000 then and $350,000 this year. He pays five different rates, and I won’t go through them all, but he paid a top rate of 39.6 percent on his last $106,000 earned in 2000. In 2012, though, he’s paying just 33 percent on every dollar from about $178,000 to $350,000. He’s making out awfully well—paying roughly $12,000 less per year than he would be at the old rates. A person making $1 million is paying more than $50,000 less.
I go into these numbers because it’s so important to have some reality in this conversation. Everybody talks about the billions, and they’re important. But we rarely write and talk about how we actually pay taxes. I submit that doing so illustrates the key substantive points on Obama’s side. First, in moral terms, the current rate structure is grossly inequitable. But second and more important, this is about stimulating the economy. The middle-income woman is almost certainly going to take her tax savings and spend it. She probably doesn’t have the luxury of saving or investing it. The $350,000 earner? Well, maybe he’ll spend it on a more tricked-out and suped-up Lexus. Or maybe he won’t. The $1 million earner? He’ll almost certainly sock away most of that $50,000, unless this happens to be yacht year.
That’s the substantive case. Extending the tax cuts for the working and middle classes will help stimulate the economy. And this is about the only stimulus we’re likely to get, as we know. As for the upper incomes, the GOP line that this will crush small businesses, trotted out tiresomely by the Romney campaign, is blather. The vast majority of small-business owners don’t have incomes like that and will not be affected by Obama’s proposal.
And even if they are, let me introduce a little more—and more revealing—tax reality into this conversation that no one ever, ever speaks of. Let’s say a small-business person, or anyone, does end up with $270,000 in taxable income. The way the media write about this, you would assume that Obama wants to increase the rate she pays on every dollar. But no! This is emphatically not true. She would pay the higher, 39.6 percent rate only on dollars earned above $250,000—in other words, only on her last $20,000. That’s a whopping tax increase of $1,320. And it’s something that a person who’s hauled in $270,000 in taxable income (that is, after taking deductions, meaning that her gross income was probably some tens of thousands higher than that) can probably handle.
Now. Politics. I’m well aware that it’s likely impossible for a politician to explain all this stuff to people. But it shouldn’t be impossible to take my second example and use it to illustrate the fact that the increase doesn’t even amount to much until you start talking about really rich people. And it shouldn’t hard to make the stimulative point, either. But in his remarks on Monday, Obama didn’t really make either point. Watching Obama make these pitches is sometimes like watching Peyton Manning line up behind center and hand the ball off to his fullback six times in a row. Dude, throw the ball! Play offense!
Put this squarely on Romney and the Republicans. I know I’m a broken record, but it’s a waste of time for Obama to talk about compromise. The House is not even going to have a vote on it. We all know this. So tell the American people that the House is the only thing standing between them and the current, lower tax rates, and that Mitt Romney is on the House’s side, not the American people’s, and for what? For the sake of making sure that people who make $1 million a year get that extra $50,000. That would get people’s attention. My guess is that John Boehner, Mitch McConnell, and Mitt Romney read Obama’s remarks from yesterday and thought: “Nothing to worry about here.”
Facts and fire. That’s what we need to see in the next four months.