The Obama Tax Cuts

By Drew Kellner, CFA.

In the final days of 2012, as the Bush Tax Cuts were about to expire forever, the sitting President pressed to make them permanent for nearly every American.  There was a brief debate about whether “nearly every” meant 98% or 99% of all taxpayers (in the end 99% prevailed, with the support of heavily-taxed urban Democrats), but no discussion at all about whether the Clinton tax rates might be a good idea for the other 98% of the population—either now, or at some point in the future when the economy is stronger.

That made no sense, in the context of the media’s endlessly-repeated assertion that the Bush tax rates were a Giveaway To The Rich, so a confused client asked us what the heck was going on.  Weren’t the Clinton rates better?

The Clinton rates were better at collecting revenue, and we’re going to have to return to those levels (and add some European-style taxes on top) if we’re going to pay for the higher spending levels of today and tomorrow.  We’re spending more than we’ve ever collected in taxes, so it’s utterly clear that these tax rates mean deeper cuts to Medicare and other entitlements . . . We’re reaching the point where the only way to deal with the entitlement crisis is to tell the Baby Boomers that they’re not allowed to retire.  Ever.

The simple truth is that a return to the Clinton rates in January would have triggered a huge tax increase for the workers in the lowest tax bracket.

In fact, the tax on the first $17,850 of income (married filing jointly) would have gone up fifty percent, from 10% to 15%.  At higher rates the Bush cuts were actually less dramatic;  a return to the Clinton rates in January would have meant that the portion of your income that is between $146,000 and $223,000 would have ticked up to 30.5% from 28%.  There would have been an even-smaller increase from 33% to 35.5% on income earned in the bracket that runs from there to $400,000.

Didn’t happen. And there didn’t seem to be anybody in Washington who wanted to allow the automatic return of the Clinton tax rates for taxpayers who earn five times the median household income of $50,054.

What did the media have to say about all this?  The silence was deafening.

 

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