("Bush tax cuts" refers to two bills passed in 2001 and 2003, at the urging of President George W. Bush, which decreased income taxes for all Americans, and slashed taxes radically for U.S. millionaires and billionaires. The Bush tax cuts contributed significantly to building the federal budget deficit; Mr. Bush inherited a budget surplus from President Clinton.)
President Obama has long and consistently stated that he supports extension of the Bush tax cuts only for couples making less than $250,000 and individuals making less than $200,000. Reported CBS News soon after the 2010 elections:
"Mr. Obama wants to keep the tax breaks for middle class families earning less than $250,000 a year. He would let them expire for wealthier taxpayers...
"When asked if he was ready to compromise with the Republicans on the Bush tax breaks, the president told '60 Minutes' correspondent Steve Kroft he expected a serious conversation on it. But he added that extending the Bush tax cuts for people making over $250,000 a year over the next ten years would require borrowing $700 billion."
Here's the flaw in Obama's thinking: $250,000 is, indeed, a fortune for a family residing in a state or region with a lower cost of living, which, per Third Quarter 2010 data, includes the Midwest and Southern States.
Cost of living, however, is vastly higher for households in New England, Alaska, Hawaii, and the West Coast, where $250,000 doesn't stretch nearly as far to pay for housing, food, transportation and the necessities of living and raising a family. In the most populous U.S. urban centers as Los Angeles and New York, $250,000 is far from being great wealth.
Bottom line: $250,000/$200,000 in annual income as the threshold for defining the wealthy in this country is simply too low, unless adjusted for cost-of-living and other factors on a regional basis.
And frankly, the argument holds water that, during this ragged economy that holds tough news (floundering real estate prices, insecure employment, rising food prices) for everyone but the very top earners, now is NOT the time to be raising income taxes for the vast majority of Americans.
However, it is morally unconscionable... and entirely unaffordable for the federal budget deficit... to continue to slash taxes for the very wealthiest Americans, who are enjoying their lowest tax rates in many decades. As billionaire Warren Buffett, Chairman of Berkshire Hathaway, observed yesterday on ABC This Week:
"If anything, taxes for the lower and middle class and maybe even the upper middle class should even probably be cut further. But I think that people at the high end -- people like myself -- should be paying a lot more in taxes. We have it better than we've ever had it."
Over the Thanksgiving weekend, four Senate Democrats voiced support for extending the Bush tax cuts to families making up to $1 million yearly. Sen. Claire McCaskill (D-MO), a close ally of President Obama (see photo above), told Fox News, "we should draw the line in the sand for millionaires."
And per the Washington Post, Sen. Chuck Schumer (D-NY), pointed out the political advantages of this compromise position:
" 'There's a strong view in the caucus that if we make the dividing line $1 million, it becomes a very simple argument: We are for giving the middle class a tax break; they're for tax cuts for millionaires,' Schumer said Sunday. At $250,000, the message is 'too muddled,' he said. 'It's much clearer at $1 million. It unites our base and the independent voters we lost in this election.'"
This common-sense compromise is precisely the kind of pragmatic thinking that President Obama boasts as his oeuvre. It also makes tremendously good political sense for Democrats heading into 2012 election season.
But most importantly, this tax cut compromise is fair and just, and appropriate for the ailing U.S. economy which is difficult for all but the richest Americans.
President Obama and Congressional Democrats should solidly unite behind this smart proposal to extend Bush tax cuts for families making less than $1 million annually.