The Obama/Republican Tax Deal

What are the key features of the tax deal?

-     The Bush tax cuts will be extended for two years. (Until the next elections in Fall, 2012. When we will get to do it all over again.)

-     The tax cuts will include everybody, including the top 2% of all Americans. (The Democrats wanted to extend the cuts for everybody but the top 2%. In true patriotic fashion, the Republicans in the Senate threatened to not allow any legislation come to the floor for a vote until the tax issue was resolved and they made it clear we had to protect the top 2% along with everybody else.)

-     Investment tax credits will be extended for certain socially responsible investments (i.e., solar energy, biofuels, etc.)

-     The employee’s share of the Social Security tax will be cut by 2% for 2011. For the typical working American, this will mean about $100 per month in additional disposable income. (The theory is that if we give somebody a check for $1500 they are more likely to save it, but if we trickle it out over the year they are more likely to spend it, thereby stimulating the economy.) The employer’s share – the part I pay for my employees – stays the same. (Where is my tax cut?) (Not to mention we keep hearing that Social Security is going to be in trouble in the next 10 years. If we are already going to need more money, why are we cutting what goes in now?)

-     Unemployment benefits will be extended by up to 13 months. (The “up to” is because not everybody qualifies. If you are in a state with low unemployment, you may not get the extension. The theory is that if unemployment is low, you should be able to find a job.)

-     The cost of all this? Between lost tax revenues and paying for the unemployment extension, about $1 trillion, in round numbers. (The lowest number I have heard is $850 billion, but what’s a spare $150 billion between us friends?)

One of the true ironies here is all the huffing and puffing and blathering the Republicans were doing before the November, 2010 elections where they kept telling everybody they stood for fiscal conservatism and by gosh and by golly, if they got elected, they were going to rein in Obama and the Democrats and their socialist agenda. I remember hearing a lot of “no new spending that isn’t paid for.” Except, of course, tax cuts and unemployment benefits. (The Republicans argue that the tax cuts aren’t “new spending.” Valid point. Intellectually dishonest, but a valid point.) And aren’t unemployment benefits “socialist”? (At least under the Republican definition of “redistributing wealth.”) The fact that they are popular and at least to some extent necessary doesn’t negate the fact that somebody else has to pay for it. (Redistributing.) And tax cuts for the wealthy and tax incentives for businesses, the stock of which are usually held by wealthy people, means that somebody else has to pay the taxes they would have paid. (Redistributing.)

Of course, the big joke is that nobody is paying for all of this. At least not yet. Our kids and grandkids will get to pay for it someday, but for now, the minions of big business who populate Washington and Wall Street are throwing a party and writing hot checks to cover the cost. The problem is writing hot checks only works for so long and then the consequences tend to be kind of nasty.

 Michael Baumer

 

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by Michael Baumer