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The Not-So-Secret Conservative Plot to Raise Taxes on the Middle Class

Right-Wing Leaders Tap the Less Well Off to Pay for Tax Cuts for the Rich

SOURCE: AP/Julio Cortez

New Jersey Gov. Chris Christie, in his fiscal year 2011 budget, proposed cuts to the state’s earned income tax credit and reductions in homestead rebates, which would increase taxes on the middle class and working poor. At the same time he proposed lifting the state’s estate tax exemption from $675,000 to $1 million, and allowing a temporary tax on incomes of more than $400,000 to expire.

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The media has reported the fact that budget proposals by conservatives at both the state and federal levels cut services that the middle class depends upon such as education and Medicare and Medicaid. But with the exception of some of my Center for American Progress colleagues, few have covered the tax hikes on the middle class that the conservative movement is supporting. The budget proposals being pushed by a number of conservative governors and state leaders, as well as the plan passed by congressional Republicans, would increase taxes on the middle class to pay for their plans’ tax cuts for corporations and the wealthy.

Up until now, conservatives have usually wrapped their tax cuts for the wealthy and corporations in the cover of helping the middle class. The Bush tax cuts are a textbook example, where the lion’s share of the benefits went to the wealthy but middle-class taxes were cut. Taxpayers in the top 20 percent received more than 70 percent of the tax cuts, while the middle 20 percent of the population received less than 9 percent, according to analysis by Citizens for Tax Justice.

But with budgets especially tight, people are keeping a closer eye on the bottom line. Tax cuts that increase the federal deficit or put state budgets out of balance are viewed less favorably than they used to be. Conservative politicians are choosing to continue cutting taxes for the wealthy and corporations in this new reality but they’re using a different approach by paying for it in cuts to government programs or in tax hikes for the poor and middle class.

Simply put, conservatives are waging a war on the middle class to reduce taxes on already quite privileged groups. Corporations earned $1.6 trillion in profits last year and the top 1 percent of Americans captured 52 percent of all income growth in the United States between 1993 and 2008.

Let’s start with the budget passed by House Republicans this month, which would require tax increases on the middle class to pay for tax cuts for the wealthy. The proposal is written in a manner that tries to fudge this point. But the outcome of the budget is clear: Taxes on the middle class would go up.

The congressional Republican plan calls for reducing rates on the highest-income earners—those in the top two tax brackets—which reduces their top marginal tax rate by nearly one-third. But the plan simultaneously keeps total tax revenue at current levels, meaning someone has to pay for these tax cuts for the wealthy. And that someone is the middle class and the poor.

The Republican plan tries to obfuscate this fact by not providing any analysis showing how different taxpayers would be affected and by talking vaguely about “broadening the tax base.” But since the plan rejects tax increases on capital gains and actually reduces corporate tax rates, the only possible way it can raise the revenue it claims to raise is by hiking taxes on the middle class.

When the Tax Policy Center analyzed a related but more detailed and far-reaching proposal by Rep. Paul Ryan (R-WI), the author of the plan passed by House Republicans, they found it would raise taxes on 90 percent of Americans while cutting taxes for the rich.

At the state level, Michigan Gov. Rick Snyder’s (R) budget would raise personal income taxes by an average of 0.6 percent on middle-class households making between $17,000 and $83,000, according to the Institute on Taxation and Economic Policy. At the same time it cuts taxes on business by more than 86 percent. In Maine, Tea Party Gov. Paul LePage’s (I) tax reform package would increase property taxes by $400 on virtually all state taxpayers while raising the state’s estate tax exemption from $1 million to $2 million—allowing 400 of the state’s wealthiest estates to escape taxation.

Then there’s New Jersey Gov. Chris Christie (R), who in his fiscal year 2011 budget proposed cuts to the state’s earned income tax credit and reductions in homestead rebates, which would increase taxes on the middle class and working poor. At the same time he proposed lifting the state’s estate tax exemption from $675,000 to $1 million, and allowing a temporary tax on incomes of more than $400,000 to expire. These policies cut taxes only for the well-to-do.

The nonpartisan New Jersey Office of Legislative Services analyzed Gov. Christie’s proposal and found that a middle-class family of four earning $40,000 a year would see a tax increase of $1,066, while a family of four earning $500,000 would see a decrease in taxes of $1,811.

The final budget bill that passed the New Jersey legislature and was signed into law contained virtually all of the middle-class tax hikes, though the estate tax exemption did not make it into the final budget. Still, Gov. Christie has taken other efforts to reduce taxes on the rich while hitting the middle class, such as vetoing a bill passed by the legislature that would have raised taxes on the state’s millionaires to help fund property tax relief for middle-class property owners.

The tax cuts Gov. Scott Walker (R) of Wisconsin signed earlier this year worsened his state’s fiscal condition. So he is now planning to raise taxes on the poor and middle class by eliminating $16 million in tax credits for seniors and single mothers and reducing the earned income tax credit. A family of four earning $30,000 would see their income taxes increase by $194 if the EITC were cut, according to analysis by the Wisconsin Taxpayers Alliance.

Similar efforts are underway in Georgia where House Majority Leader Larry O’Neal (R) has introduced a bill that would cut corporate taxes by 33 percent and lower the top income tax brackets with a flat tax that boosts rates on middle- and lower-income earners. O’Neal’s plan also hikes the sales tax on basic necessities. This would reduce taxes on the highest-income earners while increasing the income tax rates that poor and middle-class Georgians pay.

In short, the conservative movement’s desire to cut taxes on corporations and the wealthy is so strong that they are willing to raise taxes on the middle class to do so. As a result, the conservative war on the middle class has gone from a largely hidden guerilla war—fought over banking regulations, the government’s role in health care, and many other policies that have significant but often indirect effects on the middle class—to a full frontal assault.

David Madland is Director of the American Worker Project at American Progress.

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