December 14, 2010
Well-to-do Alabamians would do even better under a compromise tax proposal that survived a test vote in the U.S. Senate on Monday. In fact, all working Alabamians would do better under the compromise proposal, but the top 1 percent of Alabama taxpayers would do extremely well.
According to an analysis by Citizens for Tax Justice, a Washington-based nonprofit group, the top 1 percent of Alabama taxpayers in earnings would get more than 22 percent of the benefit from the income, estate and payroll tax cuts in the plan worked out between President Obama and Republican leaders in Congress.
That wealthiest 1 percent, with an average income of $991,193, would receive an average tax reduction of $54,832, according to the analysis.
The president has drawn fire from Democrats in Congress for the compromise because it is so favorable to the nation's wealthiest taxpayers. But Obama argues that it is the only way to preserve existing tax cuts for all wage earners.
The pattern of the largest benefits going to the wealthiest taxpayers holds true for Alabamians as well.
The Citizens for Tax Justice analysis shows that in Alabama:
The lowest 20 percent of taxpayers with an average income of $10,915 would get 3 percent of the benefit of the tax changes, or an average tax savings of $367.
The second 20 percent of taxpayers with an average income of $21,273 would get 7.8 percent of the benefit of the tax changes, or an average tax savings of $953.
The middle 20 percent of taxpayers with an average income of $35,988 would get 11 percent of the benefit of the tax changes, or an average tax savings of $1,373.
The fourth 20 percent of taxpayers with an average income of $61,529 would get 17 percent of the benefit of the tax changes, or an average tax savings of $2,095.
The next 15 percent of taxpayers with an average income of $104,329 would get 25 percent of the benefit of the tax changes, or an average tax savings of $4,125.
The next 4 percent of taxpayers with an average income of $212,079 would get 13.8 percent of the benefit of the tax changes, or an average tax savings of $8,431.
And again, the top 1 percent of taxpayers would get 22.2 percent of the benefit of the changes for an average savings per taxpayer of $54,832.
The president is probably right that a compromise that preserved tax breaks for the wealthy was necessary to avoid losing those breaks for the middle class. But this compromise is clearly skewed too far toward the wealthiest Americans -- and Alabamians. The tax breaks also will feed the nation's deficits and pad the national debt.
The Obama-GOP compromise may be the only alternative that Congress can agree on before tax cuts expire in January. But when this compromise agreement ends in two years, new tax proposals should focus on addressing the deficit and more rationally sharing the tax load based on ability to pay.