Paul Revere by Cyrus Dallin, North End, Boston



Thursday, December 9, 2010


Continuing the analysis by Robert Greenstein, Executive Director, Center on Budget and Policy Priorities on the tax deal:

"The Negatives

But the package also extends President Bush’s tax cuts for households above $250,000. The Tax Policy Center says these tax cuts average over $100,000 a year for people whose incomes exceed $1 million a year; the Congressional Budget Office ranks such an extension last among the tax and spending options it studied for spurring the weak economy and creating jobs; and Zandi ranks it near the bottom of his list of options.

The package’s biggest disappointment is a provision that would shrink the estate tax well below its 2009 level for the next two years.

President Obama sought to reinstate the already-generous 2009 estate tax rules, under which the estates of 99.75 percent of people who die would be entirely tax free, according to the Tax Policy Center. Under the 2009 rules, the first $3.5 million of an estate ($7 million for couples) would be exempt from the tax, and the maximum tax rate on the taxable portion of estates would be 45 percent; the average effective tax rate on taxable estates would be below 20 percent.

But this was not good enough for Senator Kyl, who insisted on the inclusion of a proposal that he and Senator Blanche Lincoln have pushed for some time. Their proposal would exempt the first $5 million of an estate ($10 million for a couple) from the estate tax and set a maximum tax rate of 35 percent on the taxable portion of large estates. This would provide an estimated $25 billion in tax reductions over the next two years exclusively to the top one-quarter of 1 percent of estates. Those estates would receive an average tax break of about $1 million each — the bigger the estate, the more lavish the new tax break. Only the top one-seventh of 1 percent of estates would owe any tax at all, and their effective tax rate would average about 14 percent, based on Tax Policy Center estimates.

What Should Policymakers Do?

Despite the provisions concerning the upper-income tax cuts and the estate tax, which would squander billions of dollars while doing little to help the economy, policymakers should approve the package. The unemployment insurance and refundable tax credit provisions are essential to prevent large losses of purchasing power that would slow the economy — and large increases in hardship and poverty. The temporary payroll tax cut is also important for spurring economic growth. In all, the package provides $216 billion in unemployment insurance and low- and middle-income tax benefits — $120 billion for the payroll tax cut, $56 billion for unemployment insurance, and $40 billion for the refundable tax credits. (The high-end and estate tax provisions appear to total about $125 billion.)

Moreover, congressional defeat of the package would create a need for new negotiations with the Congress that takes office in January. That Congress will be more hostile to unemployment insurance and tax credits for low-income working families, just as insistent on continuing the Bush upper-income tax cuts, and aggressive in pushing for even more egregious estate-tax policies. Many in the new House majority favor estate tax repeal.

In addition, defeat of the package could lead to a protracted period during which all of the tax cuts have expired and federal unemployment benefits have ended, damaging the economy and even possibly tipping it into a double-dip recession.

The big concern about the package is that policymakers will extend again in 2012, and subsequently make permanent, the high-income and estate-tax provisions, thereby making our serious long-term fiscal problems considerably worse. This is a serious threat, and it is the fundamental danger in the package.

However, there is a potential remedy. In 2012, the economy should be stronger than it is today. In addition, Congress likely will have enacted some significant budget cuts, and the nation likely will be debating the sort of further cuts that various commissions have recently proposed, including cuts in Social Security and Medicare benefits for elderly widows and seriously disabled people with incomes as low as $20,000. At that point, the President will need to make clear that he will veto any legislation extending the high-end tax cuts or the weakening of the estate tax beyond its 2009 parameters, and he should use the bully pulpit to take this case to the country.

The country will not likely believe that millionaires should continue to get tax cuts averaging over $100,000 a year and multi-million-dollar estates should continue to receive $1 million average tax cuts while programs ranging from education to environmental policies to Medicare and possibly Social Security are on the cutting block."

And Ed Kilgore, Democratic strategist, has this to say to Democrats:

"Let's Say Tax Deal Rebellion Succeeds: Then What?

It's too early to tell anything definitive just now, but there is definitely a possibility that Democratic and Republican opponents of the deal struck by the White House and GOP congressional leaders can combine forces to kill it.

Progressives avid for this to happen do need to ask themselves a simple question: then what? It's not like the collapse of the deal is going to place Obama or other Democrats in a time machine where they can start all over in mobilizing public pressure on congressional Republicans to support their own position. Given the strength of conservative opposition to the deal, GOPers are not about to recut it to make it more acceptible to Democrats, particularly if any extension of top end rates and any compromise on the estate tax are off the table. Besides, Republicans are about to take over the House and increase their numbers in the Senate; time is on their side.

If Democrats are considered in media accounts the prime factors in killing the deal, Republicans may well be happy to play a waiting game, refusing to extend unemployment benefits (much less provide additional economic stimulus through a payroll tax holiday or extension of low-income refundable tax credits) and blaming any economic or political fallout on divisions among Democrats. A tax logjam will also provide a convenience excuse for the GOP to continue to obstruct votes on DADT and the START treaty.

So are progressives willing to pay that price for the principle of not extending upper-income tax cuts? I'm asking this question honestly; personally, I consider ever-worsening economic inequality the great undiscussed issue of our time, and think the abolition of estate taxes would be morally obscene. But those who urge a course of action that makes these positions non-negotiable have a responsibility to game-plan this out a bit in terms of real-life consequences. "Fighting" is not a strategy; nor is "drawing a line in the sand." No rebellion is going to change the Obama administration's handling of the 2009 stimulus bill or the 2010 health reform bill. And you can't make the tax issue a no-brainer: yes, Obama did promise to oppose extension of tax cuts keyed to the top bracket, but he also promised, much more vocally, to extend the rest of them, so he's going to have to break a promise anyway you look at it.

In other words, it would be a shame if all this progressive anger at the president is really just retroactive, and about the public option or "card check" or the size of the stimulus or Afghanistan, because the issues bound up in the tax deal are very real and immediate, and by no means symbolic. So they should be part of the discussion, as should any thoughts the president might have about how he intends to regain some political initiative after the big Democratic Congress of the last two years officially becomes a thing of the past. "
Posted by Ed Kilgore on December 8, 2010 9:26 AM


TAO said...

You can argue the pros and cons of the tax debate all you want but the reality is that tax cuts, putting money in the hands of consumers DOES create economic activity.

But, as we have found over the course of the last two years is that economic activity does not equate to job creation.

What happens in 2012 when unemployment is still above 8%, which is where the CBO says it will be after all benefits of the tax cuts are enjoyed and we find ourselves with a greater deficit, a bigger social security and medicare problem, and a greater transfer of wealth due to the fact that the tax cuts increased corporate profitability which in turn was transferred to shareholders?

Shaw Kenawe said...

I don't know the answers to your questions, TAO.

I also have heard nothing but "He should have fought harder," from a lot of folks on the left.

I think the GOP has a lot to answer for in contributing to this mess.

This country has faced severe economic policies since 2008, and the GOP's reaction has been, since Obama's election, to thwart everything and anything that might solve some of the problems because that could enhance Mr. Obama's credibility.

The GOP has expressed this publicly--their goal, during this time of economic challenge, during a time when Americans are suffering--their goal was clearly stated by Senator Mitch McConnell:

To deny Mr. Obama a second term.

IOW, ruin his presidency and bring more suffering to the American people for the sake of cynical political gain.

That's the GOP's position.

The president obviously is not thinking of his political future. Otherwise, he would have played the gunslinger--so popular in the American psyche; but also so juvenile and useless.

There is much that the Democrats and Obama could have done better, but with the GOP's explicit goal of destroying Mr. Obama at any cost, and with NO! cooperation on anything to solve our economic problems, tell me: What could he have done?

TAO said...


The real issue has nothing at all to do with Barack Obama and that is what annoys me so damn much with the democrats. Its as if they have all become "Bushites" in the sense that if you criticize a policy then it is viewed as one being disloyal to Obama.

Or as they used to say, "You are with us or against us!"

If the purpose of the tax cuts is to create jobs then obviously you have to ask yourself first and foremost can your economic system generate jobs?

I have a tremendous respect for Barack Obama but the reality is our political system is tackling a 21st century economic crisis with 20th century tools.

Then the folks you have advising the President and proposing these solutions, namely Geitner and Sommers, were also responsible for the creating the mess we are in now.

Like they say, if you find yourself in a hole the first thing you need to do is stop digging....

We have not done that yet.

I think the economy is alot like Afghanistan...when the president fills the room with the best and the brightest and asks for alternatives he gets absolutely nothing....

Shaw Kenawe said...


You may be right. Our country, as it is now, is probably unsalvagable is we continue on the path we're on.

Sue said...

Democrats need to call the thugs bluff. If the legislation dies and all the tax cuts expire then the GOP will be forced to act, you would think. Do republicans want to be responsible for the unemployed to be without any extensions, for the middle class to pay more in taxes when they are suffering so much as it is? If so then they are putting the last nails in their coffins for 2012. Let them....In January let the thugs stand up in Congress and fight for the rich while the whole country watches. Obama has the veto pen, if he has the balls he will use it against those thugs!

TAO said...

I have a tremendous respect for Barack Obama...but to make him President and then surround him with fools like Geitner, Sommers, Reid, and Pelosi....

...well, he is doing the best he can considering that mess everything is in...

Infidel753 said...

Do republicans want to be responsible for the unemployed to be without any extensions, for the middle class to pay more in taxes when they are suffering so much as it is?

They don't care. They'd gamble that (a) their own voters would listen to Fox and blame the Democrats for killing the compromise deal, and (b) by 2012 the country will have moved on to other issues and what happened way back in 2010 won't have much impact.

These guys have shown they're willing to take political risks to preserve the economically-useless tax cuts for the super-rich.

If Democrats kill the compromise now, the line will be "Democrats killed the extension of unemployment benefits."

Remember, the Republicans' #1 goal is to undermine Obama and stop him from being re-elected. These days a lot of Democrats seem to be aiming at the same goal, not realizing how they're being manipulated.