Tax Policy Center study adds fuel to debate over Bush-era rates

Raising the cutoff for Bush-era tax rates to $1 million would bring in only marginally less revenue than the Democrats’ preferred $250,000 threshold, according to a nonpartisan analysis.

The Urban-Brookings Tax Policy Center found that extending Bush-era tax rates for family income up to $250,000 a year, as President Obama has long advocated, would raise around $14 billion more over a decade than a $1 million threshold.

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That amounts to just a small piece of the full part of the “fiscal cliff,” a collection of spending cuts and tax increases that would take more than $500 billion out of the economy in 2013 alone if Washington doesn’t act.

The Tax Policy Center also found that raising the threshold to $500,000 a year would raise $7 billion less than the $250,000 cutoff.

“The reality is only about 760,000 households (out of 157 million) make between $500,000 and $1 million. Fewer than 5 million make between $250,000 and $500,000,” Howard Gleckman of the Tax Policy Center wrote in a blog post this week.

“Even though each of these individual households makes a lot of money and pays a lot of tax, letting them keep their tax cuts of the last decade for one more year isn’t that big a deal.”

The Tax Policy Center’s projections, according to Gleckman, assume that Bush-era rates would only be extended for one year, something both the GOP-controlled House and the Democratic Senate passed this year.

Lawmakers on both sides of the aisle have said they would like to complete a full rewrite of the tax code in 2013.

The Tax Policy Center’s findings come as negotiations to keep the economy from plunging over the fiscal cliff are beginning in earnest.

Administration officials and staffers for top lawmakers held fiscal cliff meetings this week, and Obama and congressional leaders could meet again next week, when Congress comes back into session.

Obama has consistently said that any fiscal cliff deal must include tax increases on the wealthiest.

But there have also been suggestions that Democrats could settle for increasing the top rate from its current 35 percent to somewhere below the Clinton-era 39.6 percent. Top Democrats like Sen. Chuck Schumer (N.Y.) also pushed for a $1 million cut-off in the past, before party leaders coalesced around Obama’s preferred $250,000 figure earlier this year.

For their part, GOP officials have said they will stand firm against any rate increase, even as they privately acknowledge that Obama’s reelection this month gives Democrats an upper hand in negotiations. Republicans have long said that raising top income rates would hurt small businesses that pay taxes through the individual code.

If Bush-era rates expired, those making between $200,000 and $1 million, according to the tax center, a joint venture of the Urban Institute and the Brookings Institution, would see less of a tax increase than those making seven figures.

Those making more than $1 million a year would see an average increase of almost $140,000 under the Senate Democrats’ plan.

But those making between $200,000 and $500,000 would see an average tax hike of roughly $9,300. Households earning between $500,000 and $1 million would see around a $17,000 increase in their tax bill.

Liberals have also pointed out that permanently extending Bush-era rates would cost about $950 billion more over a decade than cutting off the rates at family income up to $250,000.