Wednesday, December 8, 2010

Obama's Tax Defeat

Make no mistake. The bipartisan tax agreement between the White House and Congressional Republicans will save you money over the next 2 years. 

That is unless you make less than $20,000 a year ($40,000 for a couple filing jointly). 

That's right. This big tax cut agreement increases the tax burden on the lowest earners. You see, the Making Work Pay credit goes away. That credit for low and middle wage earners gave them $400 to individuals or $800 to families. But the benefits of this new plan are less than $400/$800 for those lowest earners so they actually end up losing a few dollars a week. A few dollars a week that these lowest earners need more than the top 1% of earners need their average $70,000 tax cut under this plan.

That's right. The rich just got richer. It happens every time.

Of course, they were already rich. In fact, the super rich make out best of all. Those in the top 1% will receive 25% of the benefit of this new tax plan.

There was also no movement on closing the loophole that allows hedge fund managers to file their income under capital gains, because they earn fees and a percentage of the take on whatever their hedge fund makes their investors each year. Why does this matter? Because they aren't investing or earning off their own money. They're investing and earning off their investors. So it's income, not capital gains. These guys who make millions and even billions of dollars each year currently pay a 15% capital gains tax. That's the equivalent to the 2nd lowest tax bracket in our income tax structure for 2010. An individual making over $34,000 will move into the next bracket, taxed 25% on anything over that amount. So a hedge fund manager is taxed at a substantially low rate than is his secretary. 

Further, there's a one year reduction in our Social Security tax. For an individual at the maximum social security income ($106,800), they'll save $2,136 this year. Think about that for a minute. We've cut back on our Social Security revenue collection at a time when we're worried that Social Security will be insolvent soon. Well, it just got sooner. Well done.

Of course, none of this will be paid for by spending decreases. Nope, it'll just go into the deficit. Into federal bonds that those with excess money can invest in to earn interest on top of their tax breaks. Makes perfect sense, right? We lend money to ourselves and charge ourselves interest. All so we can have a little extra cash in our pocket. 

President Obama defended this tax plan with this, “I’ve said before that I felt that the middle-class tax cuts were being held hostage to the high-end tax cuts. I think it’s tempting not to negotiate with hostage-takers, unless the hostage gets harmed. Then people will question the wisdom of that strategy. In this case, the hostage was the American people, and I was not willing to see them get harmed.”

This is a perfectly reasonable response. Most of President Obama's reasons are soundly rational.
At a time when the average American is really hurting financially. When millions of homes are being foreclosed upon. When there are 5 potential workers for every available job. When unemployment stands at 9.8%. That's not the time to draw a line in the sand and dare your opponents to cross it. That's the time to stand up, do what is right, and protect the interests of the working class. If that means you have to make concessions to the wealthy, that's apparently the price you pay in today's political environment. 

The trouble is, of course, he didn't stand up for the weakest of the weak - for the working poor making less than $20,000 a year. I guess they were the hostages that didn't make it out alive. Pity.

1 comment:

  1. I disagree. I think a stand was needed. Yes, the middle class would have been hit with higher taxes as the Reps would have continued to stonewall tax relief for anything other than the rich. But, as you've already pointed out it was the Rich that are now getting the most benefit from this tax break and it would have been the Rich who would have had to pay the most. In any case, with the deficit is as it is, putting taxes back to where they were in the past is not the worst thing that could've happened. After the middle class constituency voiced their anger with the increase taxes maybe the Reps would have folded. In any case, decrease taxes and increased spending (extended unemployment coverage) is a recipe for continued disaster.