The debate over President Bush’s income tax cuts has again revealed a common misunderstanding about how the income tax works. As Kevin Drum of Mother Jones and Dan Amira of New York note, policymakers and pundits repeatedly characterize President Obama’s proposal as extending the Bush tax cuts for people with income under $250,000. It certainly does this. But, despite widespread assertions to the contrary, people with incomes of more than $250,000 would benefit from the proposal as well.
That’s because Obama’s proposal would extend the tax cut on all income up to $250,000. As a result, Americans who would make more than that amount still would get benefits from the tax cuts on their income up to that level. We explained this point in detail during the 2010 debate.
New Tax Policy Center numbers reinforce the point by showing the full effect of Obama’s proposal across the income spectrum. Those making between $200,000 and $1 million a year would receive an average of more than $10,000 in tax cuts compared to current law. People with incomes above $1 million would receive somewhat less on average, but they, too, would benefit from the proposal.