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Citizens Tax Justice Runs the Numbers on Pelosi’s New Tax Cut Plan

When I noted that Nancy Pelosi now sees “middle class tax cuts” as applying to anything under $1 million in income, the only part I didn’t have a firm grasp of was the specific dollar figures underlying this shift. I knew that you would end up with far less in revenue if you drew the dividing line at $1 million instead of $250,000; that’s common sense. This professional troll tries to mock my lack of specificity by pulling a quote from Pelosi from the past, where she says that 80% of the Bush tax cuts go to millionaires. He clearly doesn’t understand marginal tax rates – plenty of those tax cuts would STILL go to millionaires, on the first $1 million of their income, if you don’t roll back the tax cuts until the $1 million mark.

Citizens for Tax Justice has helpfully run the numbers for me. And it’s pretty much as I suspected. First of all, they note that “Pelosi’s proposal to extend the Bush income tax cuts for taxpayers’ first $1 million of income is a departure from President Obama’s proposal to extend the tax cuts for the first $250,000 that a married couple makes and the first $200,000 a single person makes.” That’s still in the President’s budget, so this represents an undeniable shift.

As to the numbers. CTJ estimates that Pelosi’s plan would save 43% less revenue than Obama’s plan. Not to brag, but this is right around what I estimated.

CTJ’s preliminary estimates show that Obama’s proposal to extend the Bush tax cuts for the first $250,000 or $200,000 of income a taxpayer makes would save between $60 billion and $70 billion in 2013 compared to the GOP proposal to extend all the tax cuts, depending on economic conditions. Leader Pelosi’s proposal to extend the Bush tax cuts for the first $1 million of income would save 43 percent less revenue than Obama’s proposal.

So now you’re talking about between $25.8 and $30.1 billion in 2013, substantially less revenue than from the Obama plan at $250,000, and enormously less than letting all the tax cuts expire.

Moreover, highlighting the other point I made, half of the additional tax cuts, on the income between $250,000 and $1 million that Pelosi would now give up would go to millionaires. This is that whole “marginal tax rate” thing our professional troll doesn’t seem to grasp.

The additional tax cut that would result from Pelosi’s plan compared to Obama’s plan (the additional tax cut resulting from extending the Bush tax provisions for taxpayers’ first $1 million of income instead of “just” their first $250,000 or $200,000 of income) would not be targeted towards the “middle class.” In fact, 50 percent of this additional tax cut would go to taxpayers with adjusted gross income (AGI) in excess of $1 million.

This would result because under Pelosi’s proposal, a married couple making $3 million a year, for example, would continue to pay the lower tax rates (enacted under President Bush) on $1 million of their income. Under Obama’s proposal, a married couple making $3 million a year would continue to pay the lower tax rates on just $250,000 of their income.

So you can credibly say that Pelosi’s tax cut plan is, in large part, a tax cut plan for millionaires. As Bob McIntyre of CTJ says, “This town may never agree on who is middle-class, but surely we can agree it doesn’t include anyone who makes over a million dollars a year.”

UPDATE: Jared Bernstein’s take is good. He intimates that the White House will strongly oppose Pelosi’s stance. And Democratic hacks defended it as part of a political game:

But Pelosi and the White House differ on their numbers – President Barack Obama has maintained that the Bush tax rates should end for those making more than $250,000. A Democratic source explained Pelosi’s move: if Republicans didn’t agree to her proposal, it would make it “clear they are standing with millionaires and endangering the economic security of the middle class.”

So it’s that “heightening the contradictions” thing. I’m with Bernstein, too clever by half. Within ten years, we’ll see Democrats saying “Surely we can all agree that people making $197 million a year don’t deserve the Bush tax cuts, right?”

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David Dayen

David Dayen