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Put High Income Tax Cuts Back on the Budget Negotiating Table

We’ve previously discussed how the House Republican proposal to cut $66 billion in non-security discretionary spending — everything from K-12 education to clean water funds to medical research — in the current fiscal year (2011) would affect millions of middle- and lower-income families in communities all across America.

We shouldn’t think of that proposal in isolation, however.  In December, congressional Republicans demanded that Congress enact a two-year extension of President Bush’s tax cuts for people making over $250,000 – which will cost about the same amount as their proposed cuts to non-security discretionary spending for this year – as part of the year-end tax and unemployment insurance agreement.

When you think about how these priorities affect real people, you might ask yourself why no one in Washington who wants to save about $66 billion or so seems willing to talk about reversing these tax cuts at the top.  Consider the following three illustrative Americans:

Our first American is a hedge fund trader who places informed bets on whether particular mergers and acquisitions will happen and at what price.  With the extension of Bush’s high-end tax cuts, he’ll continue to enjoy a $130,000 tax break, which is the average yearly tax break for people making over $1 million.  Were Congress to let the high-end tax cuts expire, this trader would pay a top tax rate of 39.6 percent – the rate in place under President Clinton during the booming 1990s – rather than his current 35 percent.

Our second American is a working class high school kid who plans to be the first in his family to go to college.  The House GOP’s proposal to cut Pell Grant funding by 24 percent would make it harder for him to afford it.  The proposal would cut the maximum grant by 15 percent this year and about 30 percent in 2014.

Our third American is the seven-year-old daughter of a single working parent who’s enrolled in an after-school program to get extra reading instruction.  For the girl, the House GOP’s proposed $100 million cut in 21st Century Challenge Grants, which fund reading instruction outside school hours to students who need extra help and live in high-poverty areas, means that she may have to find somewhere else to go after school.

Policymakers who want to save about $66 billion this year, or any year, do not merely have to cut non-security spending.  If they’re concerned about how different proposals would affect different Americans at different income levels, they should at least think about ending tax cuts that go to people who don’t really need them.  It is time to put the high-end tax cuts back on the budget table.

Chuck Marr
Vicepresidente de Política Tributaria Federal