Speaking in Cleveland on Wednesday, President Obama reaffirmed his commitment to making the Bush tax cuts permanent for 98 percent of taxpayers and allowing them to expire at the end of this year for the richest two percent. Responding to reports that Republicans will try to block his proposal, the President said,

"So let me be clear to Mr. Boehner and everyone else:  we should not hold middle class tax cuts hostage any longer.  We are ready, this week, to give tax cuts to every American making $250,000 or less."

This is an accurate description of the situation. Republicans are threatening to vote against a bill to extend tax cuts for 98 percent of taxpayers in order to secure tax cuts for the richest 2 percent. We would not call everyone among the bottom 98 percent of taxpayers "middle class," but we certainly agree that tax cuts should not be extended for any more people.

As CTJ has noted, the Bush tax cuts were disproportionately aimed at the richest taxpayers, who happen to be the only taxpayers whose income grew wildly over the past several years. Data from the non-partisan Congressional Budget Office indicates that nearly 39 percent of the income growth from 1979 to 2007 went to the richest one percent. That's more than went to the bottom 90 percent.

The Congressional Budget Office has also studied several different measures to create jobs and found that every measure it analyzed would create more jobs per dollar of cost than income tax cuts for the rich.

And yet, some members of Congress are determined to extend the tax cuts for the rich and will even block any bill that extends the tax cuts for everyone else.

The argument Republicans most often make is that many small business owners are among the richest two percent, and ending the tax cuts for these people will mean less job creation.

This argument is a red herring. Only 3 percent of taxpayers with business income (and only 5 percent of taxpayers who rely on business income for over half of their income) are rich enough to lose any of their income tax cuts under Obama's plan. These include many partners in law firms, accounting firms, hedge funds and other businesses we don't generally think of as "small" businesses. And even for those who do create jobs, there is no connection between income tax rates and hiring decisions. Businesses are not taxed on money they pay to their employees as wages, and small business owners are not taxed on income they reinvest in their businesses.

As President Obama pointed out, the only change that the richest taxpayers face is that income in the top two tax brackets will be taxed as it was at the end of the Clinton years.

"And for those who claim that this is bad for growth and bad for small businesses," the President said, "let me remind you that with those tax rates in place, this country created 22 million jobs, raised incomes, and had the largest surplus in history."

As a previous CTJ report (with state-by-state figures) explains, low- and middle-income taxpayers actually get a better deal on average under the President's proposal than under the Republican approach, because Obama would also make permanent the improvements in the Earned Income Tax Credit and Child Tax Credit that were part of the economic recovery act.

Thank you for visiting Tax Justice Blog. CTJ and ITEP staff will soon retire this domain. But ITEP staff are still blogging! You can find the same level of insight and analysis and select Tax Justice Blog archives at our new blog, http://www.justtaxesblog.org/

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