Obama needs a deeper approach to the end of the Bush tax cuts

October 4, 2010 — by Alex Ju

The 10-year tax cuts for those in the highest tax bracket are soon set to expire, resulting in a raise of taxes on Jan. 1. As the deadline to extend the tax cuts approaches, Washington has been in a state of vacillation. Although Republicans are pushing to maintain the cuts for the wealthy, who are defined as people with an individual income of over $200,000 or a household income of over $250,000, President Obama has no plans to continue them.

The 10-year tax cuts for those in the highest tax bracket are soon set to expire, resulting in a raise of taxes on Jan. 1. As the deadline to extend the tax cuts approaches, Washington has been in a state of vacillation. Although Republicans are pushing to maintain the cuts for the wealthy, who are defined as people with an individual income of over $200,000 or a household income of over $250,000, President Obama has no plans to continue them.

Obama’s plan to simply dispose of the tax cuts shows a lack of analysis concerning the upper class, which consists of the richest 3 percent of Americans. Initially, one may come to the conclusion that all of the members in the upper bracket can and should be treated identically and that taxing this group will provide valuable income for the indebted government.

Ultimately, however, this system fails to recognize the discrepancies that exist within this seemingly marginal 3 percent. In a simplistic form of classification, an individual making the minimum $200,000 a year required to qualify as upper class is grouped with billionaires such as the Koch brothers, who operate the oil refinery-based Koch Industries. The difference between the two is dramatic.

According to the New Yorker, between 2002 and 2007, 99 percent of incomes grew 1.3 percent per year. The top 1 percent of incomes, however, increased by a whopping 10 percent. Once the top 1 percent is even further analyzed, the top 0.1 perent of earners is found to have actually tripled their income during that same 5-year span. The tax cuts should reflect this discrepancy, focusing on those at the upper end of the spectrum.

Wealth is relative. A small business owner pulling in $250,000 a year hardly feels wealthy in a place such as Manhatten or Los Angeles or even Saratoga, where the median home price is $1,380,000, according to Trulia Real Estate Search. Though $250,000 is an enormous salary when living in a city like San Jose, Saratoga’s standard of living dwarfs what is usually considered a respectable income.

In this faltering economy, people tend to be overprotective of their assets, particularly those that reside on the delicate line dividing the middle from the upper class. Though extending the tax cuts for another 10-year period is unreasonable, now is not the time to hike taxes, especially taking into consideration that the economy is just barely recovering, and a double-dip recession possible. Ultimately, merely increasing the taxes on the rich alone will not solve the country’s budget deficit, and such a sudden raise would be rash and impractical.

It is unfair to treat the entire upper class uniformly throughout the tax bracket when such a huge discrepancy exists between those encompassed by its definition. Though taxes are crucial, blindly taxing such a diverse group of people fails to consider the unequal distribution of wealth in the upper class. Obama needs to find a better thought-out plan for dealing with the Bush tax cuts that takes the factors of this deceptively uniform 3 percent into account.

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