Solving the Debt Problems

Tuesday, December 4th, 2012

(By Mark Bridger, cross-posted at ThatMansScope)

For the past 40 years or so there has been a de facto class warfare in this country. While workers’ productivity has soared, worker compensation has remained essentially flat. Meanwhile, corporate profits have boomed and the gap between the top 2% of income earners  and the remaining 98% has widened to the largest its been since the gilded Age of the Robber Barons (late 19th century) or the time just preceding the Great Depression.

(There is really no dispute about this; to see some background and charts, here are some from the Economic Policy Institute.  Also check out this discussion of CEO pay increases at the Institute for Policy Studies.)

In spite of this, Republicans and other so-called “conservatives” are suggesting that we somehow must all share equally in reducing the public debt and balancing budgets. What makes this even more outrageous is that they don’t even mean equally. What they mean is that the rich should continued to enjoy tax breaks that are unequally in their favor, while Congress must enact spending cuts that hit programs that the wealthy don’t need or even like — e.g. national parks, protective regulation, healthcare and aid to education. Thus, as Weill/Brecht say in Three Penny Opera “The answer to a kick in the pants is just another kick in the pants.” Thus, the much-vaunted “Simpson-Bowles” prescription for paying down the debt is yet another kick in the pants for working non-rich Americans.

Yet, we can “fix the deficit” and end class warfare simply by cutting away the nonsense about “job creators” and “balanced approaches” and all the rest of that 2% propaganda that even the Democrats are circulating. Several years ago I suggested an alternative tax and spending program that would have balanced the budget (at that time): You can find it here; it has a link to a NY Times “budget calculator” which, though somewhat outdated, is fun to play with; click here (you can use it to check some of the figures for the suggestions I make below).

Here then is my updated program for tax fairness and spending reform.

1. Tax all income equally. In other words, eliminate a special Capital Gains Tax and tax all income including dividends at the same graduated rates. This will prevent Mitt Romney and Warren Buffet from paying at a lower rate than their secretaries.

2. Put a sales tax on sales and purchases of stocks and bonds. Speculators should pay a tax on their sales and purchases the same as most of us do on school books, garbage cans and refrigerators. I discussed this in a previous blog. This tax would be small (¼% on each sale and each purchase) and would not be burdensome to people who are actually investing as opposed to speculating. It could generate as much as $100 billion a year.

3. Cap total deductions for income tax purposes to something around $50,000. This was, in fact, an idea proposed by Mitt Romney near the end of this year’s campaign. I doubt that either he or any Republicans would actually support its implementation since it would do a lot to level the tax playing field.

4. Return the Estate Tax to 1998-2000 levels (around 50% on estates above $3 million — we could raise that to $5 million even).

5. Sell carbon licenses to industry and allow trading of these licenses. This was also at one time a Republican plan, before the party became opposed to everything except showering money on its wealthy patrons.

6. End the state of perpetual war and cut the military budget  to pre-Cold War levels (as percentage of GNP). Bring all troops home from Afghanistan and Iraq. Drastically cut troop levels in Europe, Japan and Korea.

7. End the expensive and ineffective War on Marijuana and redirect most of the rest of the ineffective “War on Drugs” toward treatment of addiction. This would save not just on police time but also help to lower the lavish spending on prisons.

8. Cut agricultural subsidies to big agribusiness (especially ethanol subsidies to “Big Corn”).

9. Cut oil subsidies to companies like Exxon-Mobil.

10. Save Social Security for a century by eliminating the limit on income subject to the FICA tax. Doing this would make raising the retirement age or adjusting the COLAs unnecessary.

Note that I didn’t mention ending the “Bush Tax Cuts.” I am assuming that they will disappear on schedule January 1. Reinstituting them for people earning less than a quarter million dollars a year will probably be one of the few things that will happen in a somewhat bipartisan way: the Republicans can’t afford not to.

This leaves the last and biggest elephant in the tent: Medicare, Medicaid, and healthcare in general. People far more knowledgeable than I have made many suggestions that might be effective. We know that the problem can be addressed effectively because every other advanced industrialized country (and many others besides) have systems that provide better healthcare results than ours and at half the cost. We should have had “Medicare for All” (the “public option”) but that didn’t happen because of the power of the insurance industry. Nevertheless, we can start with substituting “outcome-based” compensation for the current “fee for services” contracts. Instead of doctors and hospitals being paid for the number of treatments and tests they provide, they would be paid for keeping certain numbers of people healthy over certain periods of time. This is part of Obamacare, but needs to be the standard “operating procedure” for all of national healthcare.

The steps I have suggested above would raise far more money in a far fairer way than anything proposed by either political party. Furthermore, they would help reduce the burden unfairly placed on the working people of this country by 4 decades of class warfare against them.

Progressive Guide to 2012 State Ballot Initiatives – Part 1 of 2

Sunday, September 23rd, 2012

While re-electing President Obama should be the top priority for progressives throughout the country this fall, we must also remember that there are many important candidates and issues that will be found further down the ballot on November 6.  One of the most important categories of down-ballot issues is ballot initiatives, which provide voters the opportunity to have a direct say on major policy matters.

This year, states have a plethora of ballot initiatives pending for a vote in November.  Below is Part 1 of our two-part guide to the initiatives of biggest importance to progressives this fall, along with links for how to get involved in supporting the progressive position on each initiative.  Here in Part 1, we will address ballot initiatives regarding marriage equality, reproductive freedom, criminal justice, estate taxes, and death with dignity.  In Part 2, we will highlight initiatives regarding worker’s rights, government, and education.

If you live in a state with one of the ballot initiatives, please get involved by speaking with your family, friends, and colleagues; by volunteering; and by writing a letter to your local newspaper editor.  If you live out-of-state, please contribute what you can to support the efforts of the progressive organizations who are working on these initiatives.

Marriage Equality

2011 was a banner year for advancing the cause of LGBT equality. However, the issue of marriage equality has yet to win majority support any time when it has been placed on the ballot.  We have a great opportunity to change that track record this November in Washington State, Minnesota, Maine, and Maryland.

Washington Referendum 74vote Yes to uphold the state legislature’s approval of marriage equality

* Washington United for Marriage  * Contribute  * Volunteer  * Facebook page  * Washington newspaper links

Minnesota Same-Sex Marriage Initiativevote No on constitutional amendment to ban marriage equality

* Minnesotans United for All Families  * Contribute  * Volunteer  * Facebook Page    * Minnesota newspaper links

Maine Same-Sex Marriage Questionvote Yes on 1 to repeal Maine’s ban on marriage equality

* Mainers United for Marriage  * Contribute   * Volunteer  * Facebook Page   *Maine newspaper links

Maryland Question 6 - vote Yes to uphold the state legislature’s approval of marriage equality

* Marylanders for Marriage Equality  * Contribute  * Volunteer  *Facebook Page  * Maryland newspaper links

 

Estate Tax

Oregon Measure 84 – vote No on this proposal that would eliminate Oregon’s estate tax, which applies to estates valued at greater than $1 million.  As we’ve explained previously, the estate tax is the fairest and most meritocratic kind of tax there is. For more on why Oregon’s estate tax is good for that state, check out this fact sheet from Tax Fairness Oregon. And then send a letter to your local Oregon newspaper urging people to vote No on Measure 84.

Reproductive Freedom

Florida Amendment 6 – vote No on this proposal, which would prevent state courts from reading the Florida Constitution’s right to privacy to provide any rights to choice that are broader than provided under the federal Constitution, and forbids the use of any state funds for abortion except as required by federal law (i.e., in cases of rape, incest, or to protect the life of the mother).

* Vote No On 6   * Contribute   * Volunteer    * Facebook Page    * Florida Newspapers

 

Criminal Justice

California Proposition 34 – vote Yes to help California become the 16th state to abolish the death penalty and replace it with life in prison without parole.  As we’ve explained previously, the death penalty is barbaric, ineffective, biased, and costly.  The evidence shows that the death penalty costs taxpayers more than life in prison without parole,  does not deter violent crime, and is marred by significant racial bias and far too frequent ineffective legal representation for those who are charged with capital crimes.

* Yes on 34     * Contribute     * Volunteer    *Facebook Page

California Proposition 36 – vote Yes to reform California’s three-strike law.  Under the current three-strikes law, individuals who have been convicted of two previous “serious or violent” crimes automatically receive a sentence of life in prison if they are convicted of a third crime, even if that third crime is non-violent.  Proposition 36 would reform the law by requiring life in prison only if the third crime is “serious or violent,” thereby saving the state approximately $70 – $100 million per year due to reduced prison populations.

* Committee for Three Strikes Reform   * Contribute   * Volunteer   *Facebook Page

Civil Liberties

Massachusetts Death With Dignity Initiative  - vote Yes on Question 2 to make Massachusetts the third state that allows terminally ill patients to choose to end their lives with dignity.  As we’ve explained previously, our current system that forecloses death with dignity in all but two states is simply unbearable for far too many people facing terminal illness.  One way to help reduce or alleviate these painful situations is to allow a terminally ill individual to get medical assistance in hastening their death, but only through a highly regulated system that includes multiple doctor sign offs, waiting periods, and other precautions to ensure that sick people are not being pressured into assisted suicide.  The Massachusetts ballot initiative would do exactly that, thereby allowing Massachusetts to join Oregon and Washington State in authorizing death with dignity.

* Dignity 2012    * Contribute   * Volunteer   * Facebook Page   * Massachusetts Newspapers

Voting Rights

Minnesota Voter Identification Amendment – vote No on the proposal in Minnesota to require individuals to obtain and present photo identification in order to be able to exercise their right to vote.  Supporters of the voter ID proposal pretend to be responding to rampant voter fraud, but a five-year long investigation by the Department of Justice under President W. Bush found “virtually no evidence of any organized effort” to fraudulently impact federal elections and other analyses have similarly found no evidence of fraud.  What the proposal, which would continue conservative efforts to restrict the voting rights of as many as 758,000 eligible voters, is actually designed to do is to make it as difficult as possible for Democratic-leaning groups to vote.

* Our Vote Our Future  * Contribute   * Volunteer   * Facebook Page  * Minnesota Newspapers

The Self-Made Myth, Part III: Fairness Is Not Class Warfare

Monday, May 14th, 2012

(By NCrissie B)

This is the last of three posts looking at Brian Miller and Mike Lapham’s new book The Self-Made Myth. In the first post, we considered how the “self-made man” myth of the Horatio Alger stories morphed into the “makers vs. takers” meme of Ayn Rand and her followers. Then we saw stories that illustrate what Miller and Lapham call “The Built-Together Reality.” Today we conclude with how “The Build-Together Reality” calls for different policies to support innovation and entrepreneurship.

Brian Miller is the executive director of United for a Fair Economy. Over the past 20 years, Miller has worked to build cross-class alliances of citizens from all walks of life – business leaders, workers, family farmers, seniors, students, and others – to work together for change, promoting healthy communities and an economy that works for all Americans.
 Mike Lapham is the founding director of Responsible Wealth, a project of United for a Fair Economy. Responsible Wealth amplifies the voices of more than 700 progressive business leaders and other affluent individuals in public policy debates to promote progressive tax policy and greater corporate accountability in Congress, in the media, and in corporate boardrooms.

Motivational Speaker Syndrome

Google {keys to success} and you’ll get over 32 million hits, including many books and lectures by motivational speakers. Many are sincere and based on interviews with successful people, such as ABC’s 20/20 episode titled Who Wants to be a Billionaire? 20 Keys to Success from the Superrich. Miller and Lapham quote a simpler version by J. Paul Getty: “Formula for Success: rise early, work hard, strike oil.” In terms of personal motivation, such bromides are useful. They encourage us to find what we do well, learn to do it as well as we can, look past immediate satisfaction to long-term goals, and other success-enabling attitudes and behaviors. It’s easy to ‘get’ that doing these things will improve our chances to succeed, and that’s why the Self-Made Myth is so attractive.

But not all successful people rise early and work hard, nor do all of them practice all 20 of the keys offered by the billionaires on 20/20. Far more important, tens of millions of other people in the U.S. and around the world do rise early and work hard – and practice those 20 keys – yet never achieve financial success. The Self-Made Myth may be useful for personal motivation, but it’s still a myth and when we base policy on that myth, we fall for what I’ll call Motivational Speaker Syndrome: focusing on individual attitudes and behaviors as if improving those were enough to ensure prosperity.

The Wealth of the Commons

While Miller and Lapham acknowledge that successful entrepreneurs do work hard and make sacrifices, they also recognize that:

Try as we may, it is simply impossible to completely untangle the contributions of the individual from those of society in making individual success possible. The entrepreneurs and the business leaders profiled in this book have all benefited, both personally and in their business activities, from the investments and structures made possible through governmental action. The personal testimonies of these successful individuals are a powerful rejection of the self-made myth in the United States.
[...]
In addition to the central role of government, there are nongovernmental actors that contribute to individual success. Images of community barn raisings come to mind as do the supports that many receive through our deep and rich network of nonprofit organizations. Even these nonprofit organizations, however, are supported in part by special provisions of the U.S. tax code. Any comprehensive understanding of individual success must take these societal contributions into account.

As we saw in the previous post in this series, well-regulated markets account for 30-50% of a publicly-owned company’s value, as measured both by what happens when a privately-held company goes public and by what happens when key regulations are repealed or ignored and the market confidence fails. Add the value of other hard and soft infrastructure – roads, ports, utilities, law enforcement and emergency services, education, scientific research, intellectual property and contract law, and of course the internet – and most of the wealth in the United States is created by the commons: shared resources and institutions created and/or maintained primarily by government.

Qui Bono?

That Latin phrase translates to “for the benefit of whom,” and it’s an important question to ask about the commons. As Miller and Lapham note, while no individual created or maintains the commons, those shared resources and institutions do not benefit everyone equally. For much of our nation’s history, women and non-whites were excluded from many of those benefits and the authors acknowledge that “Race, gender, class, birthright, and other factors still weigh heavily on one’s prospects in life.” They add that “Even though the story of the self-made man is a myth, we should not cease striving to create the conditions under which every American has a real opportunity to succeed in this world, free of the societal barriers that privilege some groups over others.”

Miller and Lapham also recognize the role of luck:

For every successful business person who rose early and worked hard, there are thousands of others who rose equally early and worked equally hard, but their work did not pay off with the same level of success due to factors beyond their control. An awareness of the randomness of luck should give us pause when we elevate some above others, as though their relative success and wealth is a measure of their work ethic, risk taking and inventiveness and somehow suggests a lack of effort on the part of others.

And they add the issue of historical timing, which can seem like another form of luck:

Unlike true luck, however, timing is often a reflection of public policies of the era. Those who came of age during the economic boom of the 1950s and 1960s – when unions were strong and the government was making massive investments in the United States and its citizens – had significantly more economic opportunity (provided they were white and male) than those entering the workforce now, amidst the Great Recession and a significantly weakened public sector following 30 years of tax cutting for the wealthy.

To argue that fairness is defined by market outcomes, as Mitt Romney does, is to ignore the structures that allow a privileged few to capture most of the benefits from the vast wealth of the commons.

And Many Wealthy People Agree

Although opt-in online polls are weak evidence, one such survey conducted by the Spectrem Group found that 68% of millionaires support tax increases for those earning more than $1 million per year. United for a Fair Economy’s Responsible Wealth project is:

[A] network of over 700 business leaders and wealthy individuals in the top five percent of income and/or wealth in the U.S. As beneficiaries of economic policies tilted in their favor, these individuals advocate for fair taxes and corporate accountability. Their message is simple, and surprising to some: we can afford to pay more; we don’t need any more tax breaks.

Members of Responsible Wealth recognize that their own prosperity and success would not be possible without the foundation of a strong public education system, an effective transportation network, a strong legal system and more. RW members are bound by their commitment to supporting the public investments from which they have greatly benefited.

The policies advocated by Responsible Wealth members include a more progressive income tax, taxing capital gains and dividends as earned income, extending the estate tax, and ensuring that corporations pay their fair share. United for a Fair Economy and Responsible Wealth also advocate investment in rebuilding our infrastructure, both hard infrastructure such as roads, bridges, ports, and utilities and soft infrastructure such as support for public education and scientific research.

And they recognize that social safety nets and an economic floor, rather than the “moral hazard” argued by conservatives, help encourage the entrepreneurship and innovation our nation needs:

One fact that may surprise many readers is that Europe, with its more expansive welfare state and universal health care, has a much higher rate of small business ownership than does the United States. Only about 7% of Americans are self-employed, compared with 9% of French, 12% of Germans, and 26% of Italians. Even when measured by small (fewer than 20 employees) and medium-sized (fewer than 500 employees) firms, the United States is at or near last among Organisation for Economic Co-operation and Development nations.

Finally, Miller and Lapham write:

If you are a progressive activist or community leader, challenge those in your group who may instinctively, and mistakenly, assume that all business leaders are against you. Some are, but many others are not. Seek out the business leaders in your community with an open mind and foster cross-class alliances that build greater political power and, ultimately, help better all of our communities. When you see local business leaders speaking out in favor of funding important public services, let them know they are not alone. Applaud their leadership and build new relationships where you can.

A fairer economy is not about “class warfare.” It’s about recognizing that most of our nation’s wealth is created by the commons, and advocating policies that maintain and build that commonly-created wealth to benefit all of “We the People.”

 

(Crossposted from Blogistan Polytechnic Institute (BPICampus.com))

 

Support Rep. McDermott’s Sensible Estate Tax Act

Wednesday, November 30th, 2011

 

In his recent New York Times column titled Things to Tax, Paul Krugman sensibly argues that an increased overall taxes must be a key component to any plan to deal with present and long term deficit issues.  Professor Krugman identifies two areas where taxes should be raised.  The first is through creation of a financial transaction tax, or Tobin tax, which we have previously recommended here at Winning Progressive, both because it would help raise revenues and because it would help reduce the speculative gambling that has overtaken far too much of Wall Street.

The second area identified by Professor Krugman for raising additional revenue is restoring higher taxes for the wealthiest Americans.  As Krugman notes:

The I.R.S. reports that in 2007, that is, before the economic crisis, the top 0.1 percent of taxpayers — roughly speaking, people with annual incomes over $2 million — had a combined income of more than a trillion dollars. That’s a lot of money, and it wouldn’t be hard to devise taxes that would raise a significant amount of revenue from those super-high-income individuals.

One area where we should be looking for additional revenue is by restoring the estate tax to at least its 2001 level.  The estate tax is a tax on the transfer of wealth at one’s death.  In 2001, the estate tax rate was set at 55% with an exemption for the first $675,000 of the estate.  There was also a 5% surcharge on estate value over $10 million.  But then the W. Bush Administration’s 2001 tax legislation gradually lowered the estate tax rate and increased the level of the exemption.  By 2009, the estate tax rate was 45% and the first $3.5 million of the estate was exempted from any taxation.  As a result, the number of estate tax returns fell from 108,000 in 2001 to less than 34,000 in 2009.  A total of $21 billion in estate taxes were paid in 2009 on a total estates value of $194 billion, for an effective estate tax rate of 10.8%.   And then in 2010, the estate tax disappeared entirely. 

Had no action been taken the estate tax in 2011 and moving forward would have returned to the 55% tax rate from 2001 combined with the $1 million exemption level from 2002.  Instead, as part of the budget compromise in December 2010, President Obama and Congress agreed to an estate tax rate of 35%, with an exemption of $3.5 million for an individual or $5 million for a couple as an extension of the W. Bush tax revenue reductions.  While this compromise was far from ideal, it was also far better than the proposal of many Republicans to permanently eliminate the estate tax. 

With the economy continuing to struggle, cutbacks to core government programs occurring, and the deficit still running high, however, more revenue is plainly needed, and an increase in the estate tax is a good way to get some of that revenue.  The estate tax has two major things going for it: 

  • Fairness: The people who pay the estate tax are paying it on money that they did nothing to earn.  If I had a rich relative who died and left me a $5 million estate, I would be extremely upset about their death, but I would not be upset that I received only $4.3 million after the estate tax, rather than $5 million.  Taxes for core government services have to come from somewhere, and the estate tax is probably the fairest place for them to come from.
  • Restoring Meritocracy: The estate tax is the most progressive and meritocratic tax in the country, as it impacts only the richest 1% of estates and helps prevent the perpetuation of wealth in wealthy families from generation to generation.  Contrary to Republican myth, only approximately 80 small businesses and farm estates nationwide owed any estate taxes under the 2009 standards.  With the income gap between the richest 1% and middle class Americans tripling between 1979 and 2007, it is critical that we restore the estate tax in order to help reduce that gap.  

Fortunately, there is a proposal in Congress to restore the estate tax back to its 2001 rate and 2002 exemption level, adjusted for inflation.  In particular, Rep. Jim McDermott recently introduced the “Sensible Estate Tax Act of 2011,” which would restore the 55% marginal tax rate and $1 million exemption for individuals ($2 million for couples).  Such a proposal would generate approximately $236 billion from 2012 through 2019. 

Rep. McDermott’s estate tax legislation has been endorsed by United for a Fair Economy, Responsible Wealth, Bill Gates Sr., and many others.  Lend your voice and vote to the effort by:

* Calling your Congressperson and telling then to restore the pre-2001 estate tax levels to help reduce the deficit and protect critical government services from further cutbacks.

* Writing a letter to your local newspaper editor in support of the estate tax

Why Does the GOP Want to Repeal the Estate Tax? – It’s Part of the Plan

Tuesday, January 18th, 2011

(This post is by our first guest blogger, reader Mark McCutchan from Athens, Ohio.  Welcome, Mark!)

With Republicans taking over the Governors’ mansions and state legislatures in many states this month, progressives need to be prepared for a major onslaught on funding for and services provided by state and local governments.  A prime example is Ohio, where State Rep. Jay Hottinger (R-Newark), was recently quoted as saying:

In the days and weeks and short months ahead, how state and local government functions, what services are delivered and how services are delivered are going to be transformed unlike they have ever been in the state of Ohio.

As reported in the Columbus Dispatch, a repeal of the Ohio estate tax is among the first bills introduced on the House floor last week, and is one of the GOP’s top priorities.  Why does the Ohio Republican Party support cutting state income through tax reductions of any kind?  It is half of a conservative program to destroy the social safety net carefully built to protect our most vulnerable citizens – the young, the sick, the elderly, and the poor.

Why would they want to do that?  The Ohio Republican Party, like the rest of the GOP, has come to be dominated by conservatives.  “Conservatives” really don’t conserve anything, but the word is used to describe adherents of the “strict father morality,” as discussed by George Lakoff in his book, “Don’t Think of an Elephant!”.  It is an Old Testament philosophy most recently promulgated by Dr. James Dobson (of Focus on the Family fame):

1)      The father alone is a moral authority who knows right from wrong, and is strong enough to enforce it.

2)      The child is required to be obedient to the father.

3)      Physical punishment for disobedience will result in the child learning internal discipline.

4)      Internal discipline will lead to self-reliance and success.

5)      Those people who are not self-reliant and or successful are bad, and should be punished.

6)      Those who are successful are good, and should be rewarded.

Thus, those individuals with the richest estates are good, and deserve to pass all of their wealth on to their children, according to the conservatives (they also deserve to keep more of their income too, through a repeal of the income tax, which Ohio’s new Governor John Kasich advocated during the campaign).

The second half of the program (the punishment for the bad) comes in next: the conservative “fiscal hawks” use the increased budget deficit to reduce all social funding – Medicaid and other health care, local school funding, unemployment and retraining expenses; it really doesn’t matter because all of these expenses are “nurturant” (the opposite of strict father morality) and a high priority to Democrats.   Cutting social programs will put Democrats on the defensive, and make it easier for Republicans to pass other legislation important to their donors – rich individuals and large corporations eager to increase their share of wealth and power.

Why do progressives and many moderates support keeping the estate tax?

* Budgetary Costs: The Ohio estate tax brings in about $245 million a year to local governments and about $60 million a year to the state of Ohio.  The recession has hit Ohio especially hard, lowering income tax revenues and increasing social service demand. As a result, Ohio has an estimated $8 billion budget deficit over the next two years.  State legislators are looking to cut local support to balance the budget, so repealing the estate tax would be a second punch in the gut for city and county governments.

* Fairness: The people who pay the estate tax are paying it on money that they did nothing to earn.   It follows that inheritors should pay taxes on their gift at least as high as their earned income.   Taxes for government services have to come from somewhere, and collecting them from unearned income is the least painful source.

* Restoring Meritocracy: The estate tax is the most progressive tax in the state, as no tax is assessed on estates valued below $ 338,333, and above that estates are only taxed at 6 or 7 percent.   Only the largest 7% of Ohioan estates are taxed, so the tax helps slow the concentration of money and power in wealthy families from generation to generation.

What can we do about the Republicans’ efforts to repeal the estate tax?

* Write letters to your local newspapers in support of the estate tax.  Links to Ohio newspapers can be found here.

* Contact Ohio Governor Kasich and your Ohio State Representative and Senator to demand that the estate tax stay in place.

Accepting Compromise – The Proposed Unemployment Insurance/Tax Cut Deal

Monday, December 6th, 2010

As is being widely reported, it appears that the White House and Congressional Republicans have struck a deal regarding unemployment benefits and taxes.   The deal involves agreeing to extend the Bush tax cuts for two years and, as the New York Times reports:

It includes reducing the 6.2 percent Social Security payroll tax on employees by two percentage points for a year, putting more money in the paychecks of workers. That tax cut would replace the central tax break for middle and low-income Americans included in last year’s economic stimulus measure, White House officials said.

It also includes continuation of a college-tuition tax credit for some families, an expansion of the earned income tax credit and a provision to allow businesses to write off the cost of certain equipment purchases.

The deal would include a 13-month extension of jobless aid for the long-term unemployed. Benefits have already started to run out for some people, and as many as 7 million people would potentially lose assistance within the next year, administration officials said.

The White House was also said to have agreed to Republican demands on the estate tax that would result in an exemption of $5 million per person and a maximum rate of 35 percent. Some Democratic aides said that concession alone was reason enough for Democratic lawmakers to oppose the deal when it comes up for votes in the House and Senate.

Delaying the planned Bush tax increases for another two years is a bad idea fiscally and politically for the Democrats.  As we’ve explained previously, the tax cuts for the wealthy should be ended now and the middle class tax cuts should have been extended for three years to remove them from the 2012 election.  In addition, the estate tax should be restored to at least the 2009 levels, not the watered down levels apparently included in this deal. 

That being said, however, it is clear that the votes were not there for the ideal result. As such, compromise here was necessary.  And, assuming we can trust the Republican leadership to follow through (which is certainly not a safe assumption), we got some critical things out of it.  Most importantly, the thirteen month extension of unemployment benefits is critical to helping people most in need.  The payroll tax holiday should have some stimulative effect, and the expansion of the Earned Income Tax Credit is a good idea.   In addition, while extending the estate tax even at a lower rate is not great, given that the option of leaving the issue until next year could have easily allowed the estate tax to be permanently eliminated, it is far from the worst result possible.

So, overall the deal is not great and certainly not what we would like as progressives.  However, overall the President is getting about the best we can get out of our broken Senate.

Moving forward, there are two important things to do.  First, let’s ramp up those calls on DADT repeal, the DREAM Act, and START ratification so that we can get them done during the lame duck session.

And then we progressives need to fight to change the dynamic on economic issues so that two years from now we can win the tax cuts and spending fights, rather than having to accept a not so good compromise.

Finally, while we are rightfully angry about a number of the provisions of this compromise, let’s focus our anger on the immoral Republicans who were willing to hold the unemployed hostage in order to get further tax cuts for the wealthy elite, rather than on our President who cut the deal needed to keep seven million unemployed Americans from losing their entire safety net.

What do you think about this compromise?  Let us know by sending us an email and we’ll post some of the best thoughts we receive.