Obama-McConnell Tax Compromise Not as Advertised – It’s a Trap!

Posted by AzBlueMeanie:

The Huffington Post has an analysis of the Obama-McConnell tax compromise which finds that 50 million low wage workers will be paying more in federal taxes even as America's wealthy elite enjoy a windfall. Obama-Republican Deal Could Mean Tax Hike For One In Three Workers:

The tax deal reached between President Obama and congressional Republicans could mean a higher tax bill for roughly one in three workers as a result of the Social Security tax cut Republicans pushed as a replacement for the current Making Work Pay tax credit.

The Making Work Pay credit gives workers up to $400, paid out at 8 percent of income, meaning that anybody making at least $5,000 gets the full amount — and gets as much as anybody else. Its replacement knocks two percentage points off the payroll tax cut, meaning a worker would need to make $20,000 to get a $400 break. Of the nation's roughly 150 million workers, around 50 million make less than $20,000 and will see at least some increase as a result.

Additionally, roughly a quarter of 20 million state and local workers pay no payroll tax, because they have a separate pension system. Some of those workers with children will benefit from the extension of other tax credits, but overall will have less money in their pocket.

Rep. Raul Grijalva (D-Ariz.), co-chair of the Congressional Progressive Caucus, said many House liberals were opposed to the payroll tax cut because of its effect on the poorest workers. Progressives are also concerned that the tax cut will become permanent and undermine Social Security's funding stream and political support over time.

Senior White House adviser Larry Summers asked by reporters about the effect on poorer workers, conceded that they would suffer slightly under the payroll tax cut as compared to Making Work Pay, but said the other tax credit extensions would balance it out or make the family better off. And if GDP goes up by one percent, he said, "that's $2,000 for the average family." Of course, wealth is not distributed to each family equally in the United States, so the poorest are very unlikely to see as much of a benefit from economic growth as the wealthiest.

But the extensions of the tax credits, ultimately, are merely extensions, so workers won't see a change in their income like they will see the change as a result of the change from Make Work Pay to a payroll tax cut.

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The White House, meanwhile, is circulating a chart comparing "What We Got" and "What They Got," making the case that Democrats got much more, with the "We Got" stack roughly doubling up its rival.[UPDATE: here is the White House Chart for comparison.]

Whogotwhat

But, noted Rep. Donna Edwards (D-Md.) after Thursday's Democratic meeting, the payroll tax cut could just as easily go in the Republican side.

And if the temporary Democratic victories expire and the tax cuts for the wealthy are extended, the chart looks that much redder, as put together here by MoveOn.org in response to the White House.

OBAMA-TAX-CUT-PLAN

But President Obama at least got an extension of unemployment benefits for the long-term unemployed in this compromise, didn't he? Not so much. Susie Madrak at crooksandliars.com explains. All Bets Are Off. Without A Real Unemployment Benefits Extension, This Tax Cut 'Compromise' Isn't Worth Crap:

[If you] thought there were 13 months' additional unemployment benefits in the picture.There aren't. It only maintains the status quo.

According to Calculated Risk, this is just the same kind of "bridge" legislation we've seen before, in which people who were eligible for the next level of extensions (but couldn't get them because they expired) are now eligible to move on to the next extension level.

It's not another tier. There are no new benefits. You still can't collect any more than 99 weeks. All it does is maintain the same system that was already in place.

* * *

This is the same trick they pulled back in March. The 99ers weren't able to rally the troops because the media (and the general public) thought Congress had approved additional aid, when all they did was fund the existing extensions.

President Obama gave Sen. Jon Kyl his Paris Hilton Amendment on the estate tax and didn't even get Kyl to drop his blocking ratification of the New START Treaty in return. WTF?

Moreover this tax compromise, in the words of Commander Ackbar, "It's a trap!" Any stimulus effect — and that is a remote possibility given Republican budget cutting and layoffs of public employees at the federal and state levels — would occur in 2011. Most estimates for economic growth are an anemic 1-2% range, which may be overly optimistic. Very little bang for the buck, as tax cuts are the least effective means of stimulating the economy.

Any economic benefit would drop off in 2012, a presidential election year, just as the economic benefits of the stimulus package have been dropping off in recent months as the stimulus funds begin to wind down. That sets up a worsening economy and rising unemployment heading into the election — a recipe for electoral defeat.

And kicking the can down the road to 2012 just allows Republicans to use their "Democrats are going to raise your taxes!" battle cry against Democrats, even if we are only talking about the "two percenters." Do you really think the feckless news media is going to correct the propaganda from the right to educate the voters? The media villagers and Beltway bloviators are all "two percenters" who want their tax windfall. They will stick a shiv in your back.

Worse, the Republicans' "payroll tax holiday" idea is a trojan horse for their assault upon social security. John Amato at crooksandliars.com explains. 'Payroll Tax Holiday' came into Obama's Tax Plan via Republicans:

Republicans will do anything to attack the revenue stream of Social Security so they can slowly chip away at it until they can ultimately privatize it. Once there is a "holiday," then Republicans will say that you must keep extending the cuts or Democrats will be raising your taxes. it's a simple plan, but one that it seems only bloggers understand.

The Huffington Post has the details of their plan:

Democrats have never allowed the rate to be cut, even temporarily, in the history of the program, because payroll taxes feed the Social Security trust fund and create the political base of support for the program, said Nancy Altman, author of "The Battle For Social Security", a history of the program, and head of the advocacy group Social Security Works. Republicans have won a long-sought victory, even as President Obama hails it as a win for his party.

Republicans acknowledged that the expiration of the tax holiday will be treated as a tax increase. "Once something like this goes into place, a year from now, when it expires, it'll be portrayed as a tax increase," said Sen. Bob Corker (R-Tenn.). So in a body like Congress, precedents matter and this is setting a precedent. I think that certainly is going to create some problems down the road if it passes."

Given that Congress, under Democratic control, can't gather itself to let tax cuts for the wealthiest Americans expire, members of both parties are convinced that letting the payroll tax rate revert back to its current spot will be near impossible.

"Once you bring a rate down, if it goes back up, people will feel that. They'll feel their paycheck being less and that argument" — that letting it expire amounts to a tax hike — "eventually is bound to be made," said Sen. Mike Johanns (R-Neb.).

"There's always a tendency to continue those things… Once something comes in, it's very difficult to change it," said Sen. George Voinovich (R-Ohio.) He then volunteered, without prompting, that "It would be detrimental to the Social Security system, especially when it's in bad shape."

And that's the gist of it. The President told us at the Blogger Meeting at the White House that he wanted to raise the cap higher on the payroll tax so that more revenue will come into Social Security, which is the proper way to indeed raise more revenues, but by getting into bed with Republicans on a payroll tax holiday, that would almost certainly end any chance of that happening for a very long time.

Last week the media villagers and Beltway bloviators were telling us that the oh so serious people on the oh so serious Catfood Commission and their oh so serious proposals to reduce the federal deficit simply must be enacted to address the most serious issue of the day, the federal deficit.

This week, the deficit peacocks and the feckless news media are exposed for what they really are, frauds, as they now insist that we simply must enact this tax compromise which raises taxes on the poor, gives a windfall to the wealthy elite, sets up Democrats for electoral defeat in 2012 and opens the door to Republicans gutting social security, while substantially increasing the federal deficit in the process. Republicans don't give a rats ass about federal deficits, it's all about defunding the government to undo the social safety net. Only the idiots in the political media don't get this.

The regressive proposals of the Catfood Commission projected additional revenues of approximately $4 trillion dollars over ten years. Well guess what, if we simply allow the Bush tax cuts to sunset at the end of the year as a Republican Congress wrote into the tax bill to get around the Senate reconciliation rules, the projected additional revenues are approximately $4 trillion dollars over ten years. Congress can do nothing and achieve the same result. And doing nothing is what a divided Congress is going to do best over the next two years.

Of course, Congress is not going to sit on its hands for the next ten years and do nothing. Tax policy will be an issue that continues to be debated. But the time to have that debate is now.

Up until the point that President Obama agreed to this tax compromise, he had been a fierce opponent of the faith based supply-side "trickle down" conservative economics that has destroyed our economy and led to the greatest disparity of wealth since 1929. By entering into this compromise, President Obama either knowingly or unwittingly has endorsed this bogus economic theory which has inflicted so much pain and suffering on this country. That was a foolish mistake.

Let's have this tax policy debate now, but Democrats must be clear, unambiguous and united in their assault upon this bogus faith based supply-side "trickle down" conservative economic theory. it is time to drive a stake into its heart and consign this bogus economic theory to the ash heap of history.

P.S.

Dear Mr. President:

Please invite me to your next poker party at the White House, and bring lots of money. I expect to be leaving at the end of the night with all of your money and some nice souvenirs from the White House.