Numbers Behind the Tax Cut Compromise

The Sunday Globe ran an article in the Money & Careers section about how the Obama compromise on extending the Bush era tax cuts will affect families of different income levels.

Check out the full article: http://www.boston.com/business/taxes/gallery/taxdealbythenumbers/

Here's some telling data:
Population Segment by Income     Savings (as % of Income)
Bottom 20%                                   $3,342 (10%)
Middle                                            $3,246 (4.3%)
Top 20%                                        $6,538 (4.5%)
Top 1%                                          $6,788 (1.5%)
Top 0.1%                                       $92,658 (4.5%)

As you can see, these tax cuts aren't exactly progressive with the super rich getting a better deal than the middle or upper middle class.  This comes at a time when income inequality in the US, which has been growing for the past 40+ years and has especially accelerated since the mid-1980s, is reaching an all time high.  There's a lot of debate about the role the income disparity plays in the US, but in general countries that have a better education system than the US, or rate higher on health indicators, or have lower crime rates also have a more equal distribution of wealth and income.  The US' inequality is about the highest in the developed world.

The argument for extending the tax cuts is that raising taxes right now would halt any economic growth that we're seeing.  That is essentially true, economists agree that this compromise will help spur economic growth.  However, most of that growth and job creation will come from the extension of unemployment benefits and the reduction in the payroll tax, not the continued income tax cuts.  Additionally, there is a vocal group of Americans and legislators who feel that reducing the impending deficit should be our #1 priority.  Extending tax cuts doesn't do this.  Letting the tax cuts expire on earnings over $250,000, $500,000 or even $1 million would have been a reasonable way to let most of Americans continue to have money to spend and put back into the economy while using excess discretionary earnings to bring the budget into balance.  There need to be additional tax brackets above $250,000 to account for the incredible income growth and disparity that has occurred at the top end of the income scale.  There is always a lot of populist anger when people see sports stars or Wall Street bankers walking away with million and billion dollar salaries and bonuses.  It would be nice to see some anger directed towards the broken system that protects them and allows our economic growth to walk away without benefiting the vast majority of Americans for whom that growth has been so elusive.

[Additional source - http://en.wikipedia.org/wiki/Income_inequality_in_the_United_States]