The Tax Policy Center—a joint project of the Urban Institute and the Brookings Institution—has a lineage that in Washington think tank circles is as impressive as a marriage between a Cabot and a Lodge. As a result, the press understandably gave lavish attention to an October 1 report by the center calculating that “middle-income households would see an average [tax] increase of almost $2,000” if the federal government goes over the “fiscal cliff.”
More than two months later, these numbers remain embedded in the media coverage of the budget showdown between Barack Obama and Republicans in Congress. The Washington Post highlights the Tax Policy Center estimates in an interactive “Fiscal Cliff calculator: What it means for me,” while Slate’s analogous feature asks, “How Far Would You Fall Down the Fiscal Cliff?” And a New York Times article last week stated, “If the two parties fail to come to a deal by Jan. 1, taxes on the average middle-income family would rise about $2,000 over the next year.”
For most Americans, the largest single component of this purported tax increase would be the full expiration of the Bush-era tax cuts at the end of the year. That is the principal reason why a married couple making $106,000 a year could see its taxes rise by 18 percent.
That’s a number that might startle some taxpayers. And Obama has only added to a sense of alarm with campaign-style events such as his December 6 visit to the Falls Church, VA, home of Richard and Tiffany Santana. Using that $2,000 figure (and doubling it because Tiffany’s working parents live in the same household), the president said, “A couple of thousand dollars means a couple of months’ rent for this family.”
To raise the stakes a bit higher, Obama added this warning during his visit with the Santana family: “We’re in the midst of the political season. I think the American people are counting on this getting solved. The closer it gets to the brink, the more stressed they’re going to be.”
The media has only displayed intermittent skepticism about these claims—and, as a result, has been complicit in fiscal cliff hyperbole. In this case, it is the job of the press to lessen stress rather than exaggerate it. The problem with all the downbeat forecasts—whether the Santana family’s potential problems with their rent, or that 18-percent tax increase for a prosperous married couple—is that they simply will not happen in any known political universe. The chances are greater that the dire prophesies in the Mayan calendar are correct than that Congress will let the Bush tax rate cuts expire for anyone other than the wealthiest Americans.
Obama has already signaled that he is willing to keep the lower rates on annual taxable income below $400,000. House Speaker John Boehner says his threshold is $1 million.
No one in elective office wants to raise the income tax rates of our hypothetical family earning $106,000. If that were a real possibility members of Congress might as well retire now, since that would be their collective career arc if they somehow failed to preserve the Bush tax cuts for most voters.
(It is true that all wage earners will probably take a bit of a fiscal hit in 2013, since the temporary two-percent reduction in payroll taxes appears not likely to be renewed. The Bush tax cuts, however, are a larger factor than the payroll tax rollback for every income group above the bottom 20 percent).
Much of this breathless media coverage rests on the implication that tax rates will unalterably rise if a deal is not reached between the president and Congress by New Year’s Eve. Wrong. As a few stray articles, such as an October 9 Times piece by Annie Lowrey, have pointed out, the Treasury legally could delay sending out new withholding tables to employers if no deal is reached by the deadline. If the withholding tables remain the same and the extension of the Bush tax cuts is made retroactive to January 1, then the brief income tax hikes will have been entirely theoretical for most Americans.