$76,812. That’s a lot of money, right? It is more than the typical income of DC households. It is 350 percent of the federal poverty line for a family of four.
It also happens to be the value of the average tax break for DC’s wealthiest households from the decision late last year to extend President Bush’s tax cuts.
A little history: President George W. Bush championed a wide range of tax cuts in 2001, his first year in office. The plan adopted by the Congress called for all of those tax breaks to expire at the end of 2010. In 2008, presidential candidate Barack Obama pledged to maintain tax cuts on the first $250,000 of income — including the first $250,000 for the wealthiest households — but to let tax cuts above $250,000 expire.
Obama reversed this course late last year, agreeing to extend all tax cuts for the next two years, in an effort to show willingness to compromise with Republicans after the devastating election results for the Democrats.
Now, the Institute for Taxation and Economic Policy has crunched numbers to show what extending those tax breaks will mean in DC and in every state. The DC stats show:
- The wealthiest 1 percent of DC residents ‘ with average income of $2.6 million ‘ will get a $77,000 tax break from the extension of the Bush tax cuts. This is on top $29,000 in tax cuts on the first $250,000 of their income, which they would have kept even under Obama’s campaign proposal.
- For the next 4 percent of DC’s households ‘ with average income of $465,000 ‘ Obama’s agreement to extend the Bush tax cuts on income above $250,000 saves them $3,100 on average, on top of $6,300 in tax breaks on the first $25,000 of income. That’s a total tax cut of $9,400.
The size of these tax cuts helps put recent discussions of income tax increases in DC in perspective. A proposal in 2010 to increase the DC income tax rate by one percentage point on income above $200,000 would have meant an increase of $2,650 for a family earning $465,000. Yet these families will pay $9,400 less in federal income taxes in 2011 as a result of the 2001 Bush tax cuts. Even with a DC income tax increase, there total income tax liability would be far lower than a decade ago.
As the District continues to struggle with the worst economic crisis since the Great Depression ‘ with a budget gap of as much as $600 million ‘ raising taxes as part of a balanced approach would help the city preserve important investments in education, transportation, health care, and other areas that have made the District a more vibrant and attractive city. And we now know that even with local tax increases, DC’s highest- income residents still would be paying a lot less in taxes than they did 10 years ago.
