The broad-ranging tax package approved Wednesday in the Senate by an overwhelming 81-19 margin may best be seen as an acid compromise, one accomplished for the broader good through a lot of nose-holding on both sides of the aisle.
Democrats rightly objected to extending vast income tax cuts for the ultra-wealthy that never should have been passed in the first place, and an outrageously generous estate tax deal, to boot.
Republicans unreasonably opposed extension of long-term unemployment benefits to people locked out of jobs in the wake of the Great Recession, and continuance of other aid to students and lower-income workers.
In the end, Democrats and Republicans came together to avoid a more perilous and inflammatory fiscal denouement over taxes in the new year. Given the options, the Senate probably did the right thing.
We say probably because we now cannot know if Republicans would have had the gall to block the Democrats’ extension of the Bush tax cuts for 98 percent of American households, as they threatened, just to save their unaffordable tax cuts for the top 2 percent of earners. Republicans, led by Sen. Mitch McConnell, were holding extension of the Bush tax cuts hostage for the other 98 percent of earners strictly to protect the tax cuts for the top 2 percent of earners – especially the top 1 percent, who will now reap fully a quarter of the tax savings from extension of the Bush tax cuts for all earners.
In fact, it may be that the Obama administration, which brokered this deal with Republicans without the congressional Democratic caucus, got a far better deal for the middle class and for continued economic stimulus precisely because the Republicans were shamelessly willing to trade virtually anything to protect their tax cuts for the very wealthiest Americans, whose 24 percent share of the nation’s wealth is already a modern national record for the top 1 percent.
If the House approves the bill today, as is widely expected despite objections to the estate tax deal, the $858 billion two-year cost of the package would benefit working and laid-off Americans in several ways.
Beyond extension of the Bush-era income tax cuts, for example, it would reduce the Social Security withholding tax, levied on the first $106,000 in income, from 6.2 percent to 4.2 percent for one year. For a family with $50,000 in income, that would add an additional savings of around $1,000; for a household with $40,000, it save about $800 more off tax payments.
The package would extend long-term unemployment benefits for another 13 months in states with less than 6 percent joblessness, and up to 99 weeks in states with an unemployment rate of 8.5 percent or higher. These benefits are crucial to out-of-work families. They also keep the economy moving by helping the jobless pay mortgages, taxes and make routine purchases that keep dollars circulating in our consumer-driven economy, rather than adding to the indigent burden.
The bill also continues college tuition credits for qualified families, an expanded child tax credit and the earned income tax credit. Additionally, it defers the alternative minimum tax that would fall on an additional 21 million upper-middle-class households this year.
The irony of the tax-cut package cobbled together over the last three weeks is that its $858 billion bill will go straight to deficit spending, without any offsetting cuts. Given all the last year’s talk about reducing annual budget deficits and the nation’s staggering $14 trillion in federal debt, it is deeply ironic that Republicans (including Sens. Bob Corker and Lamar Alexander of Tennessee) pushed so hard to save tax cuts for the wealthy. If they continue that focus in the 2012 election season, they should be held accountable for their budget hypocrisy as much as for lavishing huge tax cuts on the rich.
Obama can reasonably argue, on the other hand, that the stimulus nature of the bill – keeping tax money in the hands of ordinary consumers for the next two years – serves the larger goal of rebuilding the economy to get it to the point that comprehensive tax reform, and the closure of so many tax loopholes, can actually occur.
If the House comes around to this view, it could pass the tax package just as easily as the Senate. We would hold our nose and vote for that, too.