Tax plan, Bush cuts and all, clears first Senate hurdle

12/13/10 Kate Bradshaw
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Today more than 60 US Senators advanced the Obama Administration’s negotiated tax package. The deal includes tax cuts for the very wealthy as well as an extension of unemployment benefits through the end of 2011. But not everyone thinks the deal will benefit the working class or the economy as a whole.

In a conference call today, White House Secretary of Labor Hilda Solis calls the plan a smart thing for the US’s economic recovery and says millions of Hispanic families in particular will win from the deal.

"A low income Latino family, with two parents and two children, could see up to a $5,000 refund on their tax forms next year. And families with 3 or more children would receive a boost of up to $600."

The plan extends unemployment benefits for two million Americans and keeps both the Child and Earned Income Tax Credits in place. But it also abolishes the estate tax for those valued at up to $10 million. And, perhaps the biggest bone of contention for many Democrats, it keeps the Bush tax cuts in place for even the wealthiest of Americans. Opponents say that will add an estimated $700 billion to the federal deficit over the next decade. Last week President Obama negotiated the deal with top Republicans after they refused to budge on the Bush tax cuts. But Solis says the Democrats get far more out of the deal.

"Now, you know, it's very difficult to get to 60 votes on anything. So just the fact that we were able to get this much $238 billion as opposed to the $114 billion that wanted for the estate tax which cost $23 billion, and for the high income rate cuts, which is $91 billion, we didn't do so bad."

She says it’s better than letting the cuts expire for everyone at the end of the year, which is what was likely to happen if the administration hadn’t extended the tax cuts to individuals earning over $200,000 a year and couple earning more than $250,000.

"We had to bite the bullet here. The American public, I believe, once they have all the facts, will agree that the President bargained in a manner that got us more than what we even thought would be possible."

Solis says the plan will result in the creation of millions of jobs.

Progressives and many Democrats aren’t happy with the negotiated deal, and their concerns run the gamut. Susan Smith, a Hillsborough County-based Democratic activist, says, for one, it makes the administration look weak.

"I know there are some good things about this bill but I think when you have historic numbers in the House and Senate, and you have the Presidency, there's no excuse for allowing this kind of bill to happen."

Those who want the Bush tax cuts for all say a reduced tax burden will mean more spending on the part of the rich, a concept akin to the trickle-down effect. But Smith says she’s skeptical of the plan’s supposed economic benefits; that they didn’t work in Reagan’s day, and they won’t work now.

"I think that it's capitulation to Republican economic policies which have failed us in the past. Keeping tax cuts in place for the richest and putting the estate tax at the level that they reinstated is going to hurt us long term more than the short term benefits we're going to get as stimulus from this bill."

Smith says the GOP is being hypocritical because the plan would raise the federal deficit, though Republicans cite the deficit as a key reason they originally opposed an extension of unemployment benefits.

"Also, two weeks ago, everybody was complaining about deficits and now all of a sudden deficits don't matter again. It's very convenient how they matter when somebody wants to have a certain policy and they don't matter at other times."

She says she thinks the deal could have been negotiated more fairly.

"If they want to change the bill and do away with the tax cuts for those making more than $250 (thousand), or even $500,000 or a million (dollars) and raise the estate tax numbers than I think it would be more fair, long term."

Another provision of the package is a temporary two-percent Social Security tax cut that replaces the Making Work Pay credit. That’s an across-the-board $400 credit for anyone earning more than $7,000 annually. Economist Dean Baker of the Center for Economic Policy and Research says the swap means those at the lowest income levels would suffer disproportionately.

"For a lot of people, someone earning $50-60,000 a year they'll be considerably more money. So, if you're earning $50,000 a year, a two percentage point reduction in the payroll tax will put about $1000 a year in your pocket. But you have a lot of people, lower wage earners, say someone earning $10,000 a year, they'll only get $200 with a 2 percentage point payroll tax as opposed to the $400 they got with the Making Work Pay tax credit. So those people, it ends up being close to a third of the labor force, actually, will end up with somewhat less with the tax reduction in the payroll tax than they were getting from the Making Work Pay tax credit."

The provision is supposed to expire at the end of next year, but Baker says he’s concerned that Republicans may seek to extend it. He says if the GOP wasn’t trying to go after Social Security, they would look elsewhere for a way to boost Americans’ take-home pay.

"Social Securities finances today are relatively sound. However, if you took two percentage points of the payroll tax out of Social Security, out of the system, then it fairly quickly would face a shortfall. And in that context where you would have a lot of people, mostly Republicans but some Democrats as well who are very hostile to Social Security, the program would suddenly become very vulnerable and I think it's likely you'd see a situation where there'd be substantial cuts and quite likely a partial privatization of the program. So, I think this deal very much puts Social Security in jeopardy for really no good reason. We could find other ways to do the tax cut and if the Republicans are insisting it's this way or no way, then it's obviously because they have Social Security in their sights because it makes no sense. These aren't crazy people."

More than 80 senators approved a preliminary vote to advance the deal. Both houses of Congress are expected to vote on the $858 billion package by week’s end.

Previous WMNF coverage of Bush tax cutgs

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under the radar, again

That's pretty incredible. All of the talk about the upper income tax cut issue, or the estate tax issue, and the GOP sneaks in a provision that weakens Social Security. I wonder how many people are aware of that aspect as they applaud Obama's negotiation skills. Let's remember that his Blue Ribbon commission also recommended cuts in Social Security benefits. And maybe we should start looking around for a Democratic Primary challenger who can follow through on a progressive agends.

Sanders with similar thoughts

As I was writing my earlier post, Senator Sanders was saying something similar on the Ed Show with MSNBC. Raw Story reported it here:....... tax deal the beginning of the end of Social Security, Sen. Sanders says..... By Eric W. Dolan.....Tuesday,December 14th, 2010.................. President Obama's agreement to begin diverting some payroll taxes away from Social Security could spell the beginning of the end of America's social safety net, according to Sen. Bernie Sanders (I-VT)..................."I just spoke this afternoon to one of the leaders of one the largest the senior organizations in this country and she worries so much that when you start diverting $112,000 of payroll taxes away from Social Security, this could be the beginning," the senator said during a Monday broadcast of MSNBC's The Ed Show..........."Our Republican friends like this idea," Sen. Sanders continued. "And they will extend, I fear, that concept. It is not good for the future of Social Security."

Obama An Evil Republican Now?

Nowhere in the article or the erroneous response is the truth on the origin of payroll tax cut. Rather than watching The Ed Show, you may want to do some reading instead. If the WSJ is not good enough try the Huffington Post. 0-12-06

get a grip, hannity

I didn't watch the Ed show, I read the quote from Bernie Sanders. Neither one of your links disputes the facts as reported in Kate's story or Bernie's interview. WSJ........SAN FRANCISCO (MarketWatch) -- The White House is proposing a one-year reduction of payroll taxes as part of negotiations with Congress over the Bush tax cuts, The Wall Street Journal reported late Monday on its website. Under the proposal, payroll deductions for Social Security would be reduced to 4.2% from 6.2%, according to the Journal, citing people close to the proposal.........From Huffington.......Obama, as part of the Democratic package, secured a roughly 30 percent cut in the payroll tax, from 6.2 to 4.2 percent. Allowing it to expire in a year will mean that workers will see a nearly 50 percent jump in payroll taxes as the rate reverts back -- an event that will surely be described as a tax hike. The cut is estimated to cost $120 billion per year..........The idea that Obama will let this payroll cut expire is laughable, it will be extended because restoring the original levels will be seen as a tax increase, as Huffington states. No chance Obama would propose a middle class tax increase. Obama has become Bill Clinton for whom we have to thank for NAFTA and welfare to work. Progressives need to stop pretending Obama is on our side.

A Horse Is A Horse

The facts reported in Kate's story were not disputed in my response. Just the omission of the payroll tax cut being a proposal from Obama. Not factual was "the GOP sneaks in a provision that weakens Social Security". Were you not the author of that quote in the first response ? Even Mr. Ed (the horse) would agree your response was erroneous.

so what?

Fine, I suppose Obama proposed extending the tax cuts for the rich as well, since it's his proposal. My conclusion is that the only reason that the GOP went along with this is that they get the tools they need to privatize Social Security. Whether this is Obama's idea or something that was suggested as tool to compromise is irrelevant. The Neo Con servatives have been after this for a long time.