CHN: The Wealthiest Hold 98% of Americans Hostage to Gain Billions in the Tax Deal
Unemployment Insurance is Extended, but the Cost is High
Feeling pressure to stave off an increase in taxes for all taxpayers starting on January 1st, the Administration brokered a deal with recalcitrant Republicans to give them their top priority – tax breaks for the wealthiest. Entering the negotiations, there was broad agreement among Democrats, Republicans and the Administration that the tax cuts for the bottom 98 percent of taxpayers should be extended. At issue were the tax breaks for the wealthiest two percent. The President and most Democrats believed those should be allowed to expire. Republicans and some Democrats wanted to extend all of the Bush tax cuts. The biggest prizes in the deal for the Republicans are a two-year extension of the 2001 and 2003 income tax cuts that includes the wealthiest two percent of taxpayers and generous estate tax provisions that will result in only one-seventh of one percent of all estates being subject to the tax. Current law called for the estate tax in 2011 to revert back to its 2001 exemption level of $1 million and maximum rate of 55 percent. The compromise bill lowers the maximum rate to 35 percent and raises the exemption to $5 million per individual for two years, at a cost of $68 billion in lost revenue over this period and benefiting only the wealthiest approximately 3,500 families. In exchange, Republicans agreed to include the extension of unemployment insurance (UI) benefits for 13 months and to retain the improvements in low-income tax credits that were enacted in the American Recovery and Reinvestment Act (ARRA) in 2009. The President capitulated on the upper income tax breaks when it became clear that Republicans, who filibustered the extension of unemployment benefits allowing them to expire on November 30th for the third time this year would also be willing to let all taxpayers face an increase in their taxes in January if no action were taken. If Congress failed to pass an extension of UI, by the end of December two million unemployed would have lost their unemployment insurance benefits.
Prior to negotiations between the White House and Senate Republicans, the Senate on December 4 attempted to pass the Middle Class Tax Relief Act of 2010 (H.R. 4853), a bill that would extend expiring tax cuts on household income below $250,000 a year as well as continue the federal unemployment insurance program. This bill provided the wealthiest taxpayers with a tax reduction for their first $250,000 of income, but did not continue a still higher break for their income above that point. The Middle Class Tax Relief Act, by allowing the upper-income tax cuts to expire, limited the average tax break for millionaire households to $6,349. In contrast, allowing the high-end tax cuts to continue will provide millionaire households with an average tax break of $104,000, according to a Center on Budget and Policy Priorities analysis. The 53-36 vote fell short of the 60 votes needed to pass. Senators Feingold (D-WI), Nelson (D-NE), Manchin (D-WV), Webb (D-VA) and Lieberman (I-CT) joined all of the Republicans in voting against the bill.
Two days later the President announced the deal he had struck with Republicans to extend for two years all of the 2001 and 2003 Bush tax cuts, including the highest income levels, the low-income refundable improvements from ARRA, generous estate tax provisions, extension of an array of business and individual tax breaks, and a new provision that allows businesses to fully write off capital investments in 2011. Rejecting an extension of the President’s Making Work Pay (MWP) credit which was part of ARRA on the grounds that it was partially refundable for lower-income workers, Republicans instead agreed to a one year Social Security payroll tax holiday which reduces the employee portion of the tax by 2 percent, from 6.2 percent to 4.2 percent. The Social Security Trust Fund will be reimbursed from general revenue. The deal also adjusts the alternative minimum tax to keep a growing number of middle income taxpayers from paying more income tax.
By design, the 2001 and 2003 Bush tax cuts were set to expire in an election year. Bill sponsors knew that it would make it more difficult for members to vote to let the tax cuts expire lest they be accused of raising taxes. Democratic leaders in the Senate and House, in deference to squeamish members, failed to bring a tax bill to the floor for a vote before the Republicans gained leverage in the mid-term elections. Many Democrats vehemently opposed the deal struck by the President and Republican leaders and were particularly outraged by the estate tax provisions. On December 9, House Democrats expressed opposition by passing a non-binding resolution asking Speaker Pelosi not to bring the bill to the floor in its current form. To protest the deal, on December 10 Senator Bernie Sanders (I-VT) took to the floor for an old-fashioned filibuster. For over 8 hours Senator Sanders, with some help from Senators Sherrod Brown (D-OH) and Mary Landrieu (D-LA), spoke of the injustice of giving tax breaks to the wealthy while the gap between those at the very top of the economic ladder and those at the bottom is the greatest in the history of the United States, and the number living in poverty is growing.
Ultimately, many Democrats believed that passage of the bill before the year’s end was preferable to waiting until next year when their numbers will be diminished and Republicans would likely push for a bill with at least as much upper-income largesse but with reduced tax code help to low-income people and restrictions, if not termination, of unemployment insurance. On December 15, the Senate passed the $857 billion package by a vote of 81-19 with 5 Republicans, 13 Democrats and 1 Independent voting against the bill. Prior to the vote on passage of the bill three amendments were offered and all failed. Senator Tom Coburn (R-OK) offered an amendment that called for paying for extending UI benefits; Senator Jim DeMint’s (R-SC) amendment would have permanently extended the 2001 and 2003 tax cuts, permanently repealed the estate tax and provided permanent alternative minimum tax relief; and Senator Bernie Sanders’ amendment would have provided an extension of the tax cuts in place in 2010 only for the bottom 98 percent of taxpayers, provided an estate tax at the 2009 level (with an exemption of $3.5 million per individual and maximum rate of 45 percent), reinstated the Making Work Pay tax in lieu of the payroll tax holiday, provided a $250 COLA for seniors, veterans and the disabled, and provided funds for infrastructure.
Continuing objections in the House to the Senate-passed deal forced a revolt against the Rules Committee’s first attempt at setting the terms of House debate. The Rules Committee at first allowed one amendment, which would have made the estate tax less generous to the richest estates. The rule did not allow Members to vote for the amendment but then against the whole bill. Some who did not agree with continuing lower tax rates for the richest Americans in any form wanted their votes to clearly express their position. The rule was changed, but a bipartisan majority defeated the estate tax amendment, 194-233 (173 Republicans and 60 Democrats voted no), and then went on to pass the legislation, 277-148, at midnight on December 16. (112 Democrats voted against the bill and 138 Republicans voted for it.) The President signed the bill the next day.
More than one-fourth of the tax cuts in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, H.R. 4853, will go to the top one percent of all Americans. They will receive an average of almost $77,000 in tax cuts in 2011 alone, compared to current law, instead of nearly $29,000 under the President’s proposal. This windfall occurs by allowing the top marginal income tax rates for wealthy taxpayers, currently set at 33 and 35 percent, to remain in place – for income above approximately $210,000 and $375,000 – rather than reverting to 36 and 39.6 percent rates, retaining the 15 percent rate on capital gains and dividends rather than the pre-2001 rate of 20 percent, and slashing the estate tax. The payroll tax holiday will cost almost twice as much as Making Work Pay in 2011, an estimated $112 billion versus $57 billion, and will be worth $400 to someone earning $20,000 and $2,000 to someone earning $100,000. Those with the lowest income fare worse under the compromise than they would have under the President’s proposal. The lowest quintile will receive an average of $396 in tax cuts in 2011, rather than $507 as the President’s initial proposal provided, according to a Citizens for Tax Justice report.
While the wealthiest benefit significantly more, extension in H.R. 4853 of the improvements in ARRA to the refundable Child Tax Credit (CTC) and Earned Income Tax Credit (EITC) and the payroll tax holiday will keep 2 million Americans from falling into poverty and reduce the severity of poverty for another 19 million according to the Center on Budget and Policy Priorities. Lower-income working parents will continue to begin receiving the refundable CTC for earnings of more than $3000. If the credit had reverted back to levels enacted in 2001, they would have had to earn about $13,000 before receiving any portion of the CTC, putting 1.3 million more Americans in poverty. With the extension, married parents and those with three or more children will receive a greater amount of EITC keeping 300,000 out of poverty. In addition, the legislation continues the refundable American Opportunity Tax Credit, which provides a partly refundable $2,500 tax credit for each of four years of college.
In the interim period between the November 30 lapse in the federal unemployment insurance programs and when the programs were reinstated on December 17, over one million Americans lost their UI. More than 6 million unemployed workers rely on this insurance. The 13 month extension of the program will ensure that unemployed workers and their families do not lose weeks of desperately needed income at a time when there are still more than four jobless people for every one opening. The National Employment Law Project estimates that the reauthorization of the UI program in H.R. 4853 will itself create between 600,000 and 900,000 jobs in 2011 alone, because of the economic activity generated by UI checks being spent each month.
The President, in signing the legislation, continued to express his opposition to the upper income provisions, and vowed to end them when they expire in 2012. One of the biggest concerns about the bill for advocates, who know that the hundreds of billions in revenue loss over time adds more pressure to cut programs needed by low- and middle-income people, is that two years from now when most provisions in H. R. 4853 expire it will again be an election year when tax cuts, perhaps especially those that help wealthy campaign donors, will be a spigot very difficult to turn off.