Political Animal

Blog

January 02, 2013 11:45 AM The Deal and the Working Poor

By Ed Kilgore

Since it’s gotten relatively little attention as compared to the impact on people with taxable income over $250k, let’s give a brief look to the impact of the tax bill on the working people at the other end of the income scale.

Like everyone else, lower-income taxpayers would have taken something of a hit had the Bush tax cuts been canceled entirely, particularly those with income in the bottom marginal rate bracket of 10%, which would have vanished, exposing all income to a 15% rate (which could have cut into refundable amounts made available via the EITC and child tax credits). But that would happen only in the incredibly unlikely scenario of no future action to mitigate the repeal of the Bush rates.

To his great credit, the president insisted on including a five-year extension of the enhanced EITC and child tax credits, plus liberalized subsidies for college tuition costs, created by the 2009 stimulus legislation. This extension benefitted about 27 million Americans, and just as importantly, repulsed growing conservative sentiment to kill these provisions altogether as a form of “welfare.”

But for many low-income working folk, the apparently bipartisan decision to let the 2010 payroll tax “holiday” (2 percent of wages) expire will offset these benefits, not to mention taking lower payroll taxes off the table for the foreseeable future. Perhaps that was inevitable, but I’d like to have seen the White House and congressional Democrats make a lot more noise about it, particularly given the claims the whole tax bill was designed to avoid increased taxes on “the middle class.”

Beyond the tax bill, it’s important to recall that the White House and congressional Democrats did succeed in 2011 in insulating Medicaid and most low-income “safety net” programs (plus Medicare benefits) from the scheduled “sequester” of appropriations that was delayed for two months in the tax agreement. That is not to say, however, that Republicans will go after such programs hammer-and-tong in negotiations to cancel the sequester altogether, along with increasing the debt limit.

Considering what might well have happened to federal policies affecting the working poor in a Republican-controlled Congress with Mitt Romney in the White House—which would at this point in the calendar have been laying its final plans for a reconciliation-enabled cramdown of the Ryan Budget, including provisions designed to destroy implementation of Obamacare—the situation is highly benign, but needless to say, also highly fragile.

Ed Kilgore is a contributing writer to the Washington Monthly. He is managing editor for The Democratic Strategist and a senior fellow at the Progressive Policy Institute. Find him on Twitter: @ed_kilgore.

Comments

  • c u n d gulag on January 02, 2013 11:59 AM:

    I, for one, don't mind that that "tax holiday" is over.

    We need to be putting money into SS, and this makes everyone responsible for all their FICA dollars going in - up to the stupid income ceiling, of course.

    I'd like to see that ceiling eliminated, and everyone pay the same percentage of their income into SS and Medicare - whether someone gaff's a poll, writes about politicians committing gaffe's, waits on tables, or waits for their trust fund payments.
    ALL INCOME!!!

  • LAC on January 02, 2013 12:05 PM:

    You mean that citizens that do not have the luxury of rending their warm garments and gnashing their covered by insurance teeth about teh Obama's betrayal were a factor as well? Do tell...

  • bluewave on January 02, 2013 12:11 PM:

    No, no, no, no, no! The "payroll tax holiday" was just another way the Democrats got rolled so that the Republicans could put the squeeze on Social Security. It is a good thing it is over. Be real-- many of the working poor have habits that cost them $10-$15 per week, and Social Security is a better investment, even if Starbucks takes the hit.

  • Josef K on January 02, 2013 12:39 PM:

    the situation is highly benign, but needless to say, also highly fragile.

    The same was true when the three Estates came together in Versallies and took "the Tennis Court Oath" in 1789. Three weeks later, citizens were storming the Bastille, touching off nearly a generation of war.

    My point is that measures like the Oath and this deal, however well-intentioned, are no guarantee against a firestorm breaking out. And could even be argued to be a contributing cause of the same.

  • mb on January 02, 2013 12:44 PM:

    The payroll tax holiday was a bad idea from the beginning. Glad to see it go. It was amusing, though, to hear pundits/newsreaders intone about how the end of the tax holiday would cost a "worker" making $100,000/yr an additional $2K. My heart is bleeding for all those $100K/yr "workers."

    Personally, I think all the so-called Bush tax cuts should expire. We really do need to start paying for our gov't. Granted, a jump to Clinton rates across the board would probably be untenable economically. I'd recommend a phased increase that jumped everyone's rates 1% per year until we were back at the pre-Bush rates.

    Regardless, I'd be happy to never hear the phrase "Bush tax cuts" again. Why Dems never branded the expiration of the BTCs as the "Bush tax increase," I'll never understand. I hope that sorry chapter is closed.

  • thisdave on January 02, 2013 12:55 PM:

    The White House usually plays to the middle of the political spectrum. With this new tax deal, that will help Obama in the coming weeks, as the debt ceiling and sequestration bombs tick into view.

    The main stream media no doubt have noticed that both liberals and conservatives are unhappy with this new agreement, and they'll portray it as responsible centrism. Then, when conservatives inevitably stamp their feet and yell about Obama's positions in the upcoming negotiations (and there will be negotiations, regardless of what Obama's said), the general public will see him as the responsible grown-up, further marginalizing the Republican Party. Or so one can hope.

  • digitusmedius on January 02, 2013 1:00 PM:

    I would like to think that had Romney won, the President would have let the tax cuts expire (by veto, should a bill have got to his desk before Jan. 20). There certainly would have been no way of getting this kind of compromise done with republicans chomping at the bit to run things their own way entirely so he would have been fully justified in making republicans deal with the consequences of what they, and they only, created as a result of the deal of August, 2011. I really had hoped he'd do that anyway and then force the republicans to deal with tax cuts for the middle class and the spending cuts. He will not likely get any sort of revenue increase with the incoming Congress and he will still have to fight all the same battles on the same turf for spending cuts and the debt limit. He may have gained a few important things with this deal but I don't see him having any leverage left. Someone explain how I'm wrong, please. I'd love to be.

  • Peter C on January 02, 2013 1:18 PM:

    Since the peril of the 'fiscal cliff' was always that it would act as a giant 'austerity bomb' by simultaneously raising taxes on 100% of consumers and cutting deeply into government spending and thereby cause a recession, the deal avoids the damage to the economy. It was the real damage to the economy which would harm the poor (who suffer most during downturns).

    With the current deal, the richest pay a little more in taxes (but not enough more to be a real hardship), the rest of us lose our silly payroll tax holiday (which we won't greatly feel), and the defense industry has 2 more months to twist arms.

  • guachi on January 02, 2013 2:31 PM:

    Hooray! Probably the best chance in decades to lock in higher revenue is now gone. Looks like the Republicans got 85% of the Bush tax cuts extended essentially forever and somehow they think they lost.

    This deal means deficits now, deficits tomorrow, deficits forever!!! I'm so happy my elders have been such colossal failures these past 30 years and now we youngsters get to pay for your deficit spending mess.

    Thanks for nothing, idiots.

  • Doug on January 02, 2013 6:07 PM:

    guachi, you DO realize don't you, that the "Bush tax cuts" were reductions in tax rates set during the first Clinton administration? IOW, there's nothing preventing ALL those tax rates from returning once the economy is in better shape.
    With any luck, when we return to the Clinton-era rates for everyone, we'll also return to pre-Reagan 50% marginal rates.
    HRC has her work cut out for her...

  • Anonymous on January 03, 2013 1:30 AM:

    "the rest of us lose our silly payroll tax holiday (which we won't greatly feel)"

    I beg your pardon? *You* won't "greatly feel," but the working poor absolutely will.

    Wake up, please. The country isn't made up exlusively of people with comfy jobs that pay far above the median wage-- you jerk.

  • Doug on January 03, 2013 3:38 PM:

    Anonymous, you do realize that a 40 hour per week, $8 an hour job, the reduction PER WEEK in take-home would be $5?
    I thought so...