Are you getting that feeling like your little raft is about to plunge over the edge of Niagara Falls into the mist and rocks below? The "fiscal cliff" talks began today! One of the biggest points of debate is raising taxes. Obama wants to freeze taxes for those of us who make under $250,000 and allow the Bush tax cuts to expire as planned for people making over $250,000. Republicans don't want to increase tax rates. Instead, they want to raise revenue by limiting deductions that benefit the wealthy.
Just for a little context, people who gross $100,000 a year or less are taxed at 35 percent. If the Bush tax cuts expire, people who gross over $250,000 a year will return to a 39.6 percent tax rate (from 35 percent). The median household income for Americans is around $50,000. How do Americans feel about a tax rate increase for relatively wealthy people? Let's take a look at both sides of the argument.
Arguments for allowing Bush tax rates to expire: By allowing tax rates for those making over $250,000 to return to 39.6 percent, we could raise $850 billion over a decade. Another argument is that the Bush tax cuts simply didn't work. They cost us money and didn't result in economic growth. Instead, they coincided with one of the most disastrous financial crashes since the Great Depression. Obama has said he'd be willing to accept a smaller tax increase for the wealthy.
Arguments against any tax rate increases for the wealthy: Particularly among Republicans there is support for a flat tax for everyone. Some people feel it's unfair to tax one group of people more than another group of people. Opponents to a tax hike point out that this could affect small business owners and discourage hiring. They also feel it punishes people for being economically successful.
Economist (and one Stir staffer's pick for "Sexiest Man Alive") Paul Krugman says Obama must be willing to go off the fiscal cliff rather than, as he puts it, allowing Republicans to blackmail him financially for the third time. We'll have to wait and see how far the players in Washington are willing to go! In the meantime, a poll from this summer shows that 44 percent of Americans believe a tax hike on people earning $250,000 or more would help the economy. Only 22 percent believe such a hike would hurt the economy. Everyone else just shrugs and says, "Eh."
What do you think -- should tax rates for people earning $250,000 or more increase to pre-Bush levels?
Image via TaxCredits.net/Flickr