Paul Ryan's budget would give millionaires a big tax break.
NEW YORK (CNNMoney)
Those with incomes exceeding $1 million would enjoy an average tax cut of more than $200,000, according to Citizens for Tax Justice, a left-leaning group. And it could be even bigger if Congress doesn't try to limit tax deductions, credits and preferences to offset the costs of the proposed tax cuts.
Under the Ryan budget, released Tuesday, income would be taxed at only two rates, 10% and 25%. Currently, there are seven brackets ranging from 10% to 39.6%. The House Budget Committee chair doesn't provide a lot of other details about his tax reform plans, making it hard to pin down exactly how the proposals would affect most taxpayers.
Ryan, who was the Republican vice presidential candidate last year, also didn't explain how he would recoup the income lost from eliminating higher tax rates. He is leaving it for the House Ways and Means committee to work out the details, including the income thresholds at which the rates would kick in.
In last year's budget, Ryan proposed getting rid of tax loopholes and preferences, while maintaining tax breaks for savings and investments, such as the lower rate on capital gains. The rich benefit the most from the preferential rate on capital gains. But Ryan doesn't go into that much detail in this year's plan.
Related: The rich pay majority of U.S. income taxes
Citizens for Tax Justice looked at how millionaires -- whose average income is $3.15 million -- would fare if the highest tax rate was lowered from 39.6% to 25%. Even if the wealthy gave up all their tax breaks, they'd still wind up paying $203,670 less in taxes. And if the tax preferences were maintained, their tax burden could be up to $345,640 lighter.
But since Ryan said his budget would not cost the government any revenue, the tax cut would have to be made up somewhere. Steve Wamhoff, Citizens for Tax Justice's legislative director, fears it would hit the middle class and others.
"If the rich pay less, then someone has to pay more for this whole thing to balance out," he said.
But the poor will likely not be affected much by Ryan's tax plan since they are already paying a 10% rate, according to Roberton Williams, a senior fellow at the centrist Tax Policy Center. Middle class Americans could benefit since more of their income may be subject to the 10% rate.
Ryan's plan also calls for eliminating the alternative minimum tax and the Obamacare tax hikes on the wealthy, which will lower the total tax levy for those with higher incomes.
"The higher you go, the bigger the savings will be," Williams said.
However, one of the wild cards is how Congress will handle tax deductions, credits and other preferences. Ryan said the goal is to help everyone.
"House Republicans want to clear out special-interest loopholes and lower everybody's rates," said a Ryan spokesman. "We want to reform the tax code to help the economy. We don't want to raise taxes to pay for more spending."
First Published: March 15, 2013: 8:03 AM ET
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