Tax plan, Bush cuts and all, clears first Senate hurdle
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.comments powered by Disqus