Everybody gets a tax cut!

To look at TPC’s latest estimates of the tax provisions of President Obama’s 2010 budget, you’d think there was no deficit of $1.84 trillion, or that the White House has no need to pay for an ambitious health reform plan. Or more education spending. Or more infrastructure construction.

According to TPC’s new analysis of the tax proposals in the Treasury Department’s Green Book (which turn out to be even more generous that what was disclosed in his earlier budget summary), Obama would give 90 percent of all families and individuals a tax cut. Only about 600,000 taxpayers—or about 0.4 percent--would see their taxes go up under the Obama plan.

Given the nation’s fiscal mess, this appears to be fiscal policy designed by Lewis Carroll, rather than Larry Summers or Tim Geithner. You may remember the White Queen, who told Alice, “Why, sometimes I've believed as many as six impossible things before breakfast."

How generous is the Obama plan? On average, taxpayers making $500,000 or less would enjoy a bigger increase in their incomes under his budget than they did under President Bush’s 2001 and 2003 tax cuts. Even those making between $200,000 and $500,000 would get a bigger boost in after-tax incomes under the Obama plan than they did under Bush.    

In fact, while it has become shorthand to say that Obama would make only the rich pay higher taxes, that doesn’t quite tell the story. More than three-quarters of those making between $500,000 and $1 million would get a tax cut. Almost 60 percent of those making more than $1 million a year would get a tax cut. Those lucky duckies making between half-a-million and $1 million would get an average tax cut more than $6,000 and enjoy an increase in after-tax income of more than 1 percent. And the incomes of the luckiest duckies of all—those making more than $1 million—would increase by $4,600. Is this a great country or what?

Thanks in part to Obama’s Making Work Pay credit, a sweeter Earned Income Credit, and more generous refundability provisions of the child credit, low-income families would do very well. Those making less than $50,000 per year would see their incomes rise by an average of 4 percent or more. Those making between $100,000 and $200,000 would also come out nicely, with their after-tax incomes rising an average of 4.5 percent, or about $4,800.

Two important technical points: TPC estimated the effects of the tax cuts for 2012, when most provisions are fully phased in. Also, the tax changes are relative to current law. Obama, of course, prefers to measure them against current policy—assuming, for example, that the Bush tax cuts are permanent, the estate tax is repealed, and the AMT is patched. If TPC used that measure, higher income people would be paying higher taxes under this plan. Not to be old-fashioned, but to me the law is what it is, and that’s what we should be using as a basis of comparison.  

The irony here is the Republicans continue to bash Obama for being a tax-and-spender. That he is a spender is beyond dispute (and maybe not all bad, at least in the recession-ravaged short-run). But a big taxer? Hardly.