The tax cut compromise that passed in the Senate Wednesday may be a bitter pill for many, but the smart advice on all sides appears to be the same: Take the deal while it lasts.
The agreement between President Obama and Republican leaders preserves tax breaks for the wealthy, but it also keeps tax provisions that benefit low and middle-income working families. It also adds a new tax break on earnings below $106,800 ”“ a 2 percent reduction in the taxes that support Social Security pensions.
By extending federal unemployment benefits for 13 months, the compromise promises to save millions of jobless workers from an abrupt cutoff. These long-term benefits will continue to help keep food on the tables of families in distress. Since these progressive features will be much harder to sell in next year’s Republican House of Representatives, this looks like the best possible deal.
Preserving long term unemployment benefits will cost $57 billion next year, money that will provide an immediate boost to the economy. What’s more, argues Robert Greenstein of the Center on Budget and Policy Priorities, the package preserves, and even expands, middle class tax breaks that will further stimulate the U.S. economy.
The reduction in the Social Security tax will yield $112 billion in tax savings, while credits intended to help working families will provide about $44 billion. The legislation also protects middle- and upper middle-class taxpayers from the bite of the alternative minimum tax.
But as economist Paul Krugman wrote in the New York Times this week, this $858 billion deal is more expensive than the President’s original billion stimulus, and provides less bang for the buck.
Tax cuts for the wealthy and new estate tax provisions, will cost the Treasury $129 billion, but the high-end tax breaks are not expected to provide much, if any, economic stimulus. The bill expands the already generous Bush estate tax, exempting estates of up to $5 million from any federal tax liability at all, at a cost to the treasury of $25 billion.
There’s little doubt that the Republicans will be equally determined to continue tax cuts for the wealthy two years from now. The question is whether the Democrats will be politically strong enough after the 2012 elections to press for a more progressive package of tax reforms.
— Questions? Comments? Contact Managing Editor Nick Cowenhoven at nickc@journaltribune.com.
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