TaxVox Breaking News: Obama Cuts Taxes for Rich
Roberton C. Williams
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President Obama promised during his campaign that he would raise taxes only on couples with income above $250,000 and singles with income over $200,000 but he never told us what he meant by income. In its 2009 Green Book, Treasury has finally filled in that blank.

The administration’s tax proposals call for hiking the top two tax rates from 33 and 35 percent to 36 and 39.6 percent and raising the threshold to get into the new 36 percent bracket. For couples, that bracket would start at $231,300 in 2009, up from $208,850; the starting point for singles would climb from $171,550 to $190,650. (The changes wouldn’t take effect until 2011 but it’s easier to use 2009 values and the basic idea is the same.)

Taxpayers with taxable income between the new and old thresholds would see their marginal tax rate fall from 33 to 28 percent. Those lucky folks would get a tax cut, unlike people with lower income, whose tax bills wouldn’t change. The cut’s not huge—not more than $1,122.50—but when you’re on the margin of being rich, every little bit helps.

But the tax cuts go beyond that. They would also go to some people in the new 36 percent bracket. The lower 28 percent rate they’d pay on some of their income would offset some or all of the tax increase from the higher 36 percent rate. Couples with taxable income as high as $268,716 would pay less income tax than under current law, as would singles with taxable in-come up to $222,480 (assuming that they aren’t on the AMT; if they are, the alternative tax denies them some or all of the tax cut).

We’ve complained that the president’s promise to protect more than 95 percent of households from a tax increase would make it hard to collect enough revenue to balance the budget. What we didn’t realize was that he planned to give tax cuts to people who live above his generously defined middle class.
Primary topic Individual Taxes
Research Area Individual Taxes