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Why 'Plan B' Would Actually Raise Taxes on Low Earners

John Boehner
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John Boehner

One of the touted benefits of "Plan B" is that it only raises taxes for those making $1 million or more. As Eric Cantor said Thursday morning, the plan would raise revenue "without hurting many small businesses" or taxpayers.

But a closer look at the tax impacts of Plan B shows that while it raises taxes on most million-plus earners, it also raises takes for many low-income earners.

The non-partisan Tax Policy Center found that the average taxpayer earning $1 million or more in cash income would see their taxes go up by an average of $72,000. A small number of those million-plus earners will see a tax cut, due to an anomaly in the Alternative Minimum Tax.

But lower income earners will also see a tax hike. People making between $10,000 to $20,000 will see their taxes go up by an average of $262. People making $20,000 to $30,000 will see their taxes go up by $219. (Read More: How Much Would Taxing the Rich Raise?)

Granted, those are minor increases. But drilling down deeper, you find that some of those low-income earners could see a sizable increase. One in five of Americans who earn less than $20,000 a year will see an increase of $1,070 – a sizable amount for low-income earners.

Average Tax Change Under Plan B

Annual Cash Income Level
Avg Federal Tax Change
Under $10,000 $127
$10,000 to $20,000 $262
$20,000 to $30,000 $219
$30,000 to $40,000 $158
$40,000 to $50,000 $145
$50,000 to $75,000 $68
$75,000 to $100,000 $73
$100,000 to $200,000 $120
$200,000 to $500,000 -$301
$500,000 to $1 million -$164
More than $1 million $72,360
Tax Policy

In fact, the only taxpayers who will get an overall tax cut under Plan B are those who earn between $200,000 and $1 million. People making between $200,000 and $500,000 will see an average tax cut of $301. Those making between $500,000 and $1 million will see their taxes go down by $164.

The reason is that Plan B has two parts – raising taxes on high earners and eliminating deductions for low earners. The plan raises the tax rate for those making $1 million or more to 39.6 percent from its current rate of 35 percent. It would also raise the capital gains and dividend tax rates for those earners to 20 percent from 15 percent.

(Read More: The Five Largest Landowners in America)

Yet Plan B also eliminates many of the Obama-led tax credits that largely benefit low-income earners, including the 2009 enhancements to the child tax credit, the earned income tax credit and others. Repealing these credits hurts families with children the hardest, according the Tax Policy Center.

This is not to say that Plan B is good or bad. But its true impact on taxes is broader than many in the House would lead us to believe.