Dem senators and congressmen are still kicking around a politically deft tax cut compromise: create a new tax bracket at the million-dollar mark, and tax any income in excess of that amount at Clinton-era rates. The idea’s been out there for months, and has won the endorsement of politically savvy Sen. Chuck Schumer (D-NY), for an obvious reason: it turns the tax cut fight into a fight about who’s on the side of millionaires.
But it comes at a high price. Democrats were hoping to allow the tax cuts to expire for all income above $250,000. That would still lead to large budget deficits over 10 years, but it would save about $700 billion over the GOP’s proposal to extend all the cuts permanently. The question for proponents of the new plan is: How much of that $700 billion in savings do you lose if you raise that threshold from $250,000 to $1 million? The Center for Budget and Policy Priorities ran the numbers for Jonathan Cohn and the results are eye-popping.“Using very rough, preliminary numbers, they concluded that the ten-year cost of extending tax cuts for incomes below $250,000 was $3.2 trillion and that the cost of extending cuts for incomes less than $1 million was $3.6 trillion. In other words, the higher threshold would cost an additional $400 billion over ten years.”
Savvy as it is, this maneuver would more than halve the deficit savings of their original, endangered plan. Likewise the millionaires’ bracket is significantly more expensive than yet a different Dem plan to “decouple” the tax brackets; to permanently extend all the middle-income cuts, and let cuts for income above $250,000 expire after two years.
This will all be sorted out shortly. The first big tax cut vote of the lame duck session could come as early as this week.