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The Telegram
  • Editorial: A tax code made more fair

  • The last-minute deal that averted the “fiscal cliff” Congress had built for itself has been justly criticized as small and, at best, a postponement of the fiscal crisis that now looms on another rapidly-approaching horizon.

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  • The last-minute deal that averted the “fiscal cliff” Congress had built for itself has been justly criticized as small and, at best, a postponement of the fiscal crisis that now looms on another rapidly-approaching horizon. Rather than the “grand bargain” that would put the government on a path to fiscal stability, sustainable social programs and lower debt, President Obama and Congress settled for the bare minimum: a deal on the expiring Bush income tax rates and postponement of the mandatory spending cuts they had agreed to in 2011.
    But looked at another way, the American Tax Relief Act of 2012 is a very big deal. Its impact goes beyond the marginal income tax rates that have gotten the most attention. The act also maintains tax breaks for couples with children, extends tax credits for college tuition and resolves, after decades, the threat of the Alternate Minimum Tax to middle class earners. It repeals a limit on itemized deductions for those earning less than $250,000. It eliminates the “marriage penalty” in the lower tax brackets, though keeping it for highest earners.
    Economists who have crunched all the numbers, The New York Times reported last weekend, conclude the changes don’t just avoid the cliff. They protect the lowest earners as well as extracting more from the highest earners. Taken together, the changes return the income tax to a level of progressivity it hasn’t had since 1979.
    The average family in the top 1 percent of earners will be hit with an income tax rate of more than 36 percent under the act, analysts from the Tax Policy Center estimate, compared to 28 percent in 2008. By that measure, it is a more fair tax code, which is what President Obama spent his last campaign promising to deliver.
    Economists are quick to note that tax rates are still sharply lower than they were in 1979. “Every American is paying a lower burden currently than they did then,” the Times report says. “In fact, the total federal tax rate is still vastly lower for the very rich than it was at any point in the 1940s through 1970s. It has risen from historical lows, but is still closer to those lows than where it was in the postwar decades.”
    The fine print in the new tax law, along with other tax changes written into the Affordable Care Act, mean that the wealthiest filers will contribute some $600 billion in additional taxes over the next 10 years, while the tax bills of most Americans stay the same.  With the payroll tax holiday now expired, every worker’s paycheck will feel a pinch, but that money goes directly into the Social Security Trust Fund, not the general federal budget.
    The factors that have driven an ever-widening gap between the rich and the poor -- and an even wider gap between the wealthy and the super-wealthy -- go far beyond the tax code, and these changes alone will barely nudge the income inequity needle. Nor do these changes make the code as progressive as we might like -- that would take higher rates on the super-rich.
    Page 2 of 2 - But if the goal was to make the income tax at least as fair as it was when Ronald Reagan was elected, Obama can declare that mission accomplished.
    - MetroWest Daily News

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