The Obama-GOP Deal: A Tax Hike for the Working Poor
by Bob Williams on Wed 08 Dec 2010
Tax Policy Center, Brookings
Ever since the 2008 presidential campaign, President Obama has argued passionately for extending the Bush-era tax cuts for all but the richest 2 percent of Americans. His reasoning: the rich have fared spectacularly well over the past quarter century—incomes of the top 1 percent tripled in real terms—while incomes grew slowly or not at all for those further down the income scale. Now, in compromising with congressional Republicans, the president seems to have forgotten his own logic and agreed to big tax cuts for the rich and tax increases for the poor.
Why would the working poor pay more? Because the proposal would replace this year’s Making Work Pay (MWP) credit with a temporary reduction in the Social Security payroll tax from 6.2 percent to 4.2 percent. That’s a good deal for high earners, who got nothing from MWP (thanks to an income phaseout), but a bad deal for those making $20,000 or less.
The math works this way: The MWP credit gave as much as $400 to each single worker and up to $800 to couples. If you’re single and earned at least $6,452 (and less than $75,000) in 2010, you got $400. Married couples with earnings over $12,903 (and less than $150,000) got $800.
(More here.)
Tax Policy Center, Brookings
Ever since the 2008 presidential campaign, President Obama has argued passionately for extending the Bush-era tax cuts for all but the richest 2 percent of Americans. His reasoning: the rich have fared spectacularly well over the past quarter century—incomes of the top 1 percent tripled in real terms—while incomes grew slowly or not at all for those further down the income scale. Now, in compromising with congressional Republicans, the president seems to have forgotten his own logic and agreed to big tax cuts for the rich and tax increases for the poor.
Why would the working poor pay more? Because the proposal would replace this year’s Making Work Pay (MWP) credit with a temporary reduction in the Social Security payroll tax from 6.2 percent to 4.2 percent. That’s a good deal for high earners, who got nothing from MWP (thanks to an income phaseout), but a bad deal for those making $20,000 or less.
The math works this way: The MWP credit gave as much as $400 to each single worker and up to $800 to couples. If you’re single and earned at least $6,452 (and less than $75,000) in 2010, you got $400. Married couples with earnings over $12,903 (and less than $150,000) got $800.
(More here.)
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