Right now the US Congress is voting on two different tax plans, neither of which is likely to make it all the way to the President's desk. One, the plan preferred by Republicans, renews the Bush tax cuts for all income levels including income earned in excess of $250,000 a year. The other - which Republicans will almost surely vote against - only renews tax cuts on the first $250,000 of earned income.
You have probably seen these numbers before but you have seen them explained subtly differently. Typically the American media refers to the Democratic plan as cutting income taxes "for those earning less than $250,000" and the Republican plan as "cutting income taxes for everyone."
This is incorrect and, while the difference seems pedantic at first, it has real implications for the policy fight to come.
Income taxes in the United States are marginal. That means that tax brackets only apply to the income that falls into them.* That's why it doesn't make any sense to try to artificially lower your income to keep it within a given tax bracket: the higher tax bracket only applies to the money you earn above the lower bracket's ceiling.
What that means for the tax debate should be fairly obvious then: both the Democratic and Republican plans cut taxes for everyone. Let me say that again: both the Democratic and Republican tax plans include tax cuts which benefit every American; even the Democratic plan includes tax cuts which put money back into the pockets of Warren Buffet and Bill Gates.
That's because the Democratic plan maintains cuts for the first $250,000 of income that everyone earns, just like the Republican plan. The Republican plan goes further, however, extending additional tax cuts to those making over $250,000.
When we talk about tax plans and one plan benefits "everyone" and one plan only benefits some people - even if those people are both the majority and the less well off - the plan that benefits "everyone" sounds more fair. But if both plans benefit everyone and one plan benefits the extraordinarily wealthy even more than it helps out the poor, that strikes many Americans as unfair and unequitable.
The American media has chosen, probably out of laziness, to go with the former narrative, the one that characterizes the Republican tax plan as "more fair" than the Democratic one despite the fact that, by definition, both plans do, in fact, give every American a tax cut.
This notion of fairness is going to play into the debate over the tax policy, perhaps more so than anyone is really willing to admit. Moreover, as Mitt Romney and President Obama shift their campaigns into high gear in anticipation of their upcoming conventions and the Congress barrels head-long towards the fiscal cliff brought on by the so-called Super Committee's failure, the tax debate will take on almost singular prominance in the American political arena, serving almost as a proxy for the upcoming Presidential election.
Within that context the characterization of the Republican plan as the one that "benefits all Americans" and the inference that the Democratic plan does not will likely do significant damage both to any chance of a meaningful resolution to the impending crisis and to the Obama campaign by proxy. Democrats seeking to avoid this would be well advised to push their own message hard, highlighting their own plan as one that provides tax cuts not just to the bottom 98% but to all Americans. The choice before Congress is not "should we lower taxes on the bottom 98%" but "should the upper 2% get special tax breaks that no one else gets?"
For Democrats, however, it is a late start; millions are already used to thinking of the differing plans in terms of "cuts for most people" and "cuts for everyone."
* By way of example, consider the following example in which the tax rates are entirely made up for the sake of simplicity: a two tax bracket system might tax income below $250,000 at 30% and income above $250,000 at 50%. In such a system, a person who earns $250,000 exactly would pay $250,000 x 0.3 = $75,000 in income taxes. A person who earns $250,001 dollars -- just enough to fall into the higher tax bracket -- would pay $75,000.50. Both individuals pay 30% of their first $250,000. The second person pays an additional 50% of every dollar beyond that $250,000.
