Republican Tax Cut Versus Democratic Tax Cut

The current stimulus established by the Bush Administration is set to expire on January 1, 2013. Under the current stimulus plan, the eligibility threshold was reduced to $3,000 in earned income for the child tax credit. It also increased the earned income credit for families consisting of three or more children. The marriage penalty was reduced through the higher level of earned income credit phase-out for married taxpayers. It also increased the middleclass tax deduction for tuition, and doubled the length of eligibility from two years to four years. Also, the first $1,000 of the tuition credit was refundable in an effort to offset higher education costs. Congress must now determine which proposed plan by either the Republicans or the Democrats concerning tax cuts should be allowed.

The Republican plan proposed by Senator Orrin G. Hatch of Utah, proposes to end the tax cuts established by the Bush Administration. The Republican plan would result in an expiration of tax breaks for 13 million low income taxpayers, while extending tax cuts to approximately 2.7 million of the upper class taxpayers. It would also result in a reduction of refunds for approximately thirteen million families, while some would incur an increase in taxation.

The Democratic plan favors extending the tax cuts established by the Bush Administration to 2013 as it would benefit middle class families. Under the Democratic plan, earnings of over $250,000 would be taxed at about 36 percent and 39.6 percent instead of the current 33 percent and 35 percent established by the Bush Administration. The estate tax rate would also be increased to 55 percent on inheritances over $1 million for individual taxpayers and $2 million for married taxpayers, instead of the 35 percent currently paid by estates valuing over $5 million for individual taxpayers, and $10 million for married taxpayers.

The Democratic plan would raise approximately $82 billion more in taxes in 2013 than the Republican plan. However, according to Congress’s Joint Committee on Taxation, a permanent extension of all tax cuts established by the Bush Administration would reduce taxes for households earning more than $1 million annually by approximately $74,500 in 2013, while the Democratic proposal would reduce taxes for those same households by approximately $7,000.

Republicans support ending the tax cuts established by the Bush Administration because it favors the working poor who currently receive approximately $3 in government benefits for every $1 they earn, while the middle 20 percent receives more in government refunds that they actually paid in taxes. Republicans also argue that the working poor have already received increases in government aids such as food stamps and unemployment benefits. As a result, Republicans argue that it makes sense to let this tax cut lapse, as it was not meant to be permanent but was meant to be temporary assistance to help boost the economy.

Which plan would you choose?