Wednesday, August 11, 2010

Expiring "tax cuts"

The New York Times reports on a Congressional analysis that is fueling debate over the coming tax increase when "Bush tax cuts" expire.  One of my questions has been answered in this article.  If the 10% tax bracket and other goodies are preserved for the "bottom 98%" of taxpayers, they will be saved for everyone.   So even the wealthiest will retain some portion of their Bush tax cut, under the administration's plan.  Extending the tax cuts for the bottom 98% is projected to "cost" (compared to some hypothetical baseline) $3.1 trillion over ten years. Adding in the top 2% brings up the cost to just $3.8 trillion.  Yes, $700 billion is a big number, but that's over ten years. 

From the way the media has presented the issue, I was under the impression that at last half the benefits or more of the Bush tax cuts flowed to that top 2%.  In fact, the casual observer could be forgiving for assuming that 90% of those benefits went to the wealthiest, as it is plain that many commentors at the NYTimes website believe.

Unanswered by the press report, and key to making any sense of this, is what about investment income?  Dividend taxation? I've read that Obama wants to continue taxing dividends the same as capital gains, but at the elevated top rate of 20%.  That would avoid the punishing 39.6% rate on ordinary income.  Without legislative language, it's hard to know what to expect.

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