By Al Norman
President Barack Obama has agreed to extend the Bush-era tax cuts for the very wealthy, but some leaders in his own party may not go along. Saying the American people were being “held hostage,” the President bowed to pressure from Republican lawmakers to let wealthy people continue their tax breaks. That was a costly mistake on the President’s part — both politically and financially.
Some lawmakers in Congress have suddenly discovered the federal deficit They have made deficit spending the cause of our economy woes. Yet the same Congressmen are spearheading the effort to extend tax breaks for the rich—which will worsen the deficit.
President Obama was criticized for giving in too soon on extending the tax cuts that affect only the wealthiest 2 percent of Americans — those with adjusted gross income above $200,000 for single filers and $250,000 for married couples (See information at www.massbudget.org/documentsearch/findDocument?doc_id=764). Extending the tax cuts for households with incomes below these levels has been agreed upon.
According to the Mass Budget & Policy Center, even if the tax breaks for the wealthiest filers are stopped, these individuals will still make out like bandits from the middle class tax cuts. This is because a part of high-income filers’ total income falls within the tax brackets affected by the “middle-class” tax cuts — which give the wealthiest filers tax reductions five times larger, on average, than the cuts that go to middle-class filers. Households above $200,000 income get a tax break of $6,300 as a result of the middle class tax breaks, because the income tax operates like a staircase. A person with a $3 million income can get the full benefit of the rate reductions at every “step” of income.
If the deficit hawks allow the tax cut for the rich to be extended, it will add more than $825 billion to both the deficit and debt over the next decade. One of the first deficit-cutting measures, therefore, should be eliminating this unnecessary windfall for the rich.
Proponents argue that rich people will use their tax cut to create jobs. But the Congressional Budget Office (CBO) has reported that high-income households are the least likely to spend any tax cuts they may receive, thus generating only limited additional demand. Extending the tax breaks for people with incomes above $200,000 ($250,000 for married couples) will cost the American treasury $35 billion in tax breaks in 2011 and $680 billion over the coming decade. Eighty percent of these benefits would accrue to households with incomes of $1 million or higher.
By the year 2020, these tax cuts for the richest Americans will increase the federal deficit by $97 billion. The bigger the deficit, the more interest we have to pay on the federal debt. Over 10 years, the interest on the tax cuts for the rich would add $146 billion to the deficit.
We can’t afford to subsidize the rich — especially when we can’t afford to extend benefits to the unemployed, and are discussing more cuts to Social Security. Tax cuts for the rich do not put people back to work. The CBO says that tax cuts for the rich provide little stimulus to the economy.
I thought creating new employment was Job One. Now I am told that fighting deficits is Job One. Tax breaks for high-income households will not create jobs, and will add to the deficit. So no matter which top goal you pick — the Bush tax cuts for the rich should end when the new year begins.
The President also agreed to lower Social Security Payroll taxes at a time when his Fiscal Commission is urging cuts to Social Security. That means today’s workers get a break, while future retirees will see cutbacks.
The President ran on a platform of change. It appears now that he is a changed man instead.
Please cut this article out and send it to your congressman.
Al Norman is the Executive Director of Mass Home Care. He can be reached at 413-773-5555 x 2295, or at info@masshomecare.org
