Image by AFP/Getty Images via @daylife  Wealthy Americans get at least two nice benefits from the tentative deal on tax cuts reached by President Obama and congressional Republicans Monday.  First, there’s the obvious across-the-board extension of the Bush-era tax cuts for two years. If the deal is approved by Congress, that means marginal income rates will stay at their current levels, and the dividend tax rate and the long-term maximum capital gains rate remain at 15% through at least 2012. (See “Taxes? Hold ‘Em!”)  But here’s the bonus: Instead of seeking a two-year extension of the Making Work Pay tax credit, which benefits middle-class families, the administration agreed to a one-year, 2% reduction in Social Security payroll taxes for all Americans. The Making Work Pay credit, part of the 2009 stimulus bill, phases out for individuals making more than $75,000 per year ($150,000 for couples). But there’s no income limit for the payroll tax holiday. In other words, the rich get a benefit where they didn’t enjoy one before.  Both proposals would cost the same amount of money, $120 billion. Making Work Pay, which reduces the tax burden of qualifying individuals by $400 per year ($800 for couples), costs about $60 billion per year. The payroll tax cut–which will provide a greater benefit to workers as they move up the income scale–will cost about $120 billion in 2011.  Why the shift away from Making Work Pay and towards the payroll tax holiday? Senior administration officials said Monday evening that it was a way to get tax relief to all working Americans, noting that several blue-ribbon panels charged with examining deficit reduction consider it a smart way to help jumpstart the economy.  Assuming this deal gets approved by lawmakers in the coming days, it’s an early Christmas present for America’s wealthiest workers.
The proposed payroll tax cut--in lieu of extending the Making Work Pay credit--would give the rich a benefit that they didn't enjoy before.