The White House report released this week — ahead of the vote in the Senate Wednesday to extend tax cuts for household income below $250,000 — does mention two years of payroll tax cuts that Obama pushed through in 2011 and 2012, but only when talking about how much money the president has saved American families:
stops getting collectedon income over $110,100.)
But Obama has not proposed extending the payroll tax cut — the White House spokesman has
danced around the issue, saying it is “something that we would look at in December”— and there is little appetite on Capitol Hill for extending it either. (Republicans have never liked the concept.)
For that typical family making $50,000, ending that tax break will mean a $1,000 tax increase. So, while the White House likes to claim that its proposals would reduce taxes by $2,200 for that family, the net effect of the two tax changes actually would be a reduction in taxes of $1,200. (Alternatively, if Obama’s plan fails to pass the House of Representatives, that family will see a tax increase of $3,200, not $2,200.)
Indeed, the
White House Web site continues to brag that the president last year fought for “middle class tax cuts to prevent a typical working family from losing an average of $40 per paycheck, enabling them to keep about $1,000 of their hard-earned money.” That sentence is referring to the payroll tax cut.
A White House official argues that a) the debate currently is about income taxes and no one is trying to solve all outstanding tax issues and b) the payroll taxes were always known to be temporary. In contrast, this official argued, the Bush tax cuts — at least for the middle class — were always supported as being permanent, even though Congress did not write the law that way. (Got that?)
However, the White House’s Web site still refers to the previous payroll tax cuts as “tax cuts.”
Meanwhile, keeping the focus on income taxes also allows the president to avoid talking about another pending payroll tax contained in the health care law — a 0.9 percent Medicare surtax on incomes over $200,000 for individuals and $250,000 for couples filing joint returns. (We had missed Obama’s line, referring to Clinton era tax rates, until it was
highlighted by our colleague Jennifer Rubin on Wednesday.)
The Bush tax cut set the top income-tax rate at 35 percent, and Obama would restore it to the 39.6 percent rate set during Clinton’s presidency. But while Social Security taxes are capped, there is no cap on Medicare payroll taxes — also legacy of Bill Clinton’s 1993 deficit-reduction deal.
Currently, the Medicare payroll tax is 2.9 percent, split between employers and employees, but most economists assume some of the employer’s tax payments result in lost wages for the employee. So the health-care surcharge would be on top of that, resulting,
as we previously have noted, in a marginal tax rate nearly as high as 45 percent for the wealthy.