Obama's Tax Cut for the 1% (and Everyone Else, Too)

Obama tax cuts
Obama tax cuts


On Monday, President Obama suggested a tax break that will benefit America's wealthiest citizens -- as well as some of its poorest. He proposed that the Bush-era tax cuts, which are set to expire on January 1, 2013, be extended for a year for the first $250,000 of taxable income. As for the Bush-era cuts affecting taxable income over $250,000, he suggested that they be allowed to expire.

This isn't the first time that Obama has proposed this compromise; he has already proffered this suggestion twice in his presidency, and it has already been rejected twice. In both cases, opponents described Obama's proposal as "class warfare," and suggested that he was pitting the poor against the rich. And, as media outlets across the country have reported on Obama's most recent resurrection of the policy, the same old attacks have reared their head.

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The odd thing is, as "class warfare" goes, Obama's proposal would actually give the wealthiest Americans a pretty solid tax break. Under the plan, a single filer making $250,000 a year or more would keep the $6,021.36 break that they got from President Bush's 2001 and 2003 tax cuts. On any taxable income over $250,000, Bush's breaks would expire and taxes would go up.

If Obama's proposal will benefit all taxpayers, why are reporters suggesting that it is only giving a cut to the middle class? In New York magazine, Dan Amira suggests that the problem lies with Obama. Facing a wealthy opponent, the president -- Amira argues -- is playing up the benefits for the middle class in an attempt to force Mitt Romney into a corner where he has to defend tax cuts for the rich.

%Gallery-145848%Amira's theory is good, but there's another possibility. When discussing the tax code, most analysts and pundits -- not to mention average citizens -- focus on the highest rate that an individual pays. One rarely hears about the fact that everybody pays only 10% tax on their first $8,700, 15% on everything between $8,701 and $35,350, and so forth. In other words, a millionaire pays the exact same amount in taxes on that piece of their income as someone who makes $35,350 per year...or $85,000, or $150,000. (Before deductions, of course.)

It's not hard to see why tax issues are drawn along wealth lines -- after all, creating barriers between the rich and the middle class makes for good headlines and hot political battles. In truth, though, the line isn't between cutting taxes for the rich and cutting them for the middle class; it's between cutting taxes for the rich, and cutting taxes for the rich more.

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Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at@bruce1971.

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