For High Earners, Expiring Tax Cuts Would Hit Hard
This story is part of our occasional series Fiscal Cliff Notes.
If the Bush-era tax cuts are allowed to expire, the majority of Americans will see their taxes rise. Those who will see the largest increase are the wealthy.
Dr. Hamilton Lempert, an emergency room doctor in Cincinnati, works almost exclusively on overnight shifts.
"I spent the first 30 years of my life in school in order to do what I do," Lempert says. "I work between 40 and 70 hours a week, and I earn money doing what I do."
This puts Lempert in the top 5-percent of income earners and the top tax bracket. He says he knows he's fortunate and paying taxes is just something that comes with it.
When he runs his financial information through an online calculator to figure out how his tax bill would change if the Bush-era tax cuts are allowed to expire, he gets a shock.
Lempert would take about a $20,000 tax hit.
"That's a lot of money," he says. "I will have to decide what to do for vacation. I may not be able to put as much away for purchasing a replacement car when my car dies."
That car is, as he describes it, a beat up 14-year-old Subaru. Lempert's tax bill will rise because itemized deductions will be limited, marginal tax rates will go up, and dividends will be taxed at a significantly higher rate.
"Virtually everyone in his income category will see their taxes rise an average of about $14,000," says Roberton Williams, a senior fellow at the nonpartisan Tax Policy Center. "That's about a 5 percent reduction in their after-tax income, and 5 percent is something that's, even at that income level, noticeable."
Williams says in terms of dollars and cents, and even as a percentage of income, the people who will be hit the most if the tax cuts expire are the wealthy, because they received the greatest benefit from the cuts.
Copyright 2021 NPR. To see more, visit https://www.npr.org.