A Stark Choice: Boehner’s “Plan B” and the Middle Class Tax Cut Act
Dec 19, 2012
Update: Speaker Boehner has decided not to allow a vote on the Middle Class Tax Cut Act. Instead he will be calling up for votes "Plan B" and a version of the Sequester Replacement Act passed by the House in May. These represent an unbalanced and extreme plan that would place the burden of deficit reduction overwhelminging on low- and moderate-income households. For more details, see Harsh and Unbalanced.
In less than two weeks, a combination of expiring programs, automatic spending cuts, and tax increases, popularly called the “fiscal cliff,” is scheduled to take effect. While negotiations have been proceeding between Congress and the President on a comprehensive package to prevent this, Speaker Boehner has announced his intention to bring up two proposals for votes this week that would address the tax increases only. While both of these proposals would avert tax increases for millions of middle class families, they would have starkly different effects on the revenues available to support the functions of government, from defending our nation to educating our children, from building roads to developing new cures for disease. They would also have starkly different effects on the lowest-income families.
- The first proposal, the Middle Class Tax Cut Act which was approved by the senate last summer, would extend tax cuts for individuals making less than $200,000 a year or couples making less than $250,000 a year. It would include extensions of the improvements to the child tax credit and the Earned Income Tax Credit (EITC) that have lifted 6.3 million people, including 3.3 million children, out of poverty in 2010. It would also extend the American Opportunity Tax Credit (AOTC) that makes college more affordable.
- The second proposal, Boehner’s “Plan B,” would raise taxes only on income above $1 million a year — and for the lowest income households. The plan would also raise taxes by an average of $1,000 on 25 million working households with children and students. “Plan B” does not include any of the improvements made to the EITC, the Child Tax Credit (CTC) or the AOTC in 2009. A single mother with two children working full time at the minimum wage and would face a reduction of about $1,447 – or 86 percent – to $248 in her child tax credit. Meanwhile, the top 0.3 percent of households with incomes over $1 million would get tax cuts averaging $50,000 per year.
Neither of these plans solves the fiscal cliff. Both proposals would allow federal extended Unemployment Insurance benefits to expire, and both would leave “sequestration” — indiscriminate across the board spending cuts to both military and domestic discretionary spending — in place. But the votes on these bills will strongly shape the final deal that must be negotiated.