Obama’s Tax Cut “Compromise” Raises Taxes On The Poor AND Might Spell The End For Social Security
I’m sure that everyone reading this will be surprised to discover that the primary beneficiaries of Obama’s tax cut “compromise” are the richest and most powerful people in the country. In fact, at least a quarter of the benefits from this “deal” will go directly to the top 1%. Everyone is aware of how extending the Bush tax cuts for the top bracket disproportionately benefits millionaires and billionaires. But thrown into this deal is also a “compromise” on the estate tax which will be lowered from 45% in 2009, with a $3.5 million dollar exemption, to 35% with a $5 million dollar exemption for the next two years.
The estate tax cut benefits approximately 0.5% of Americans, give or take a few. But it gets better for our downtrodden friends in the highest income bracket! It turns out that capital gains and dividends will still be taxed at 15%, so hedge-fund managers and private equity investors like Warren Buffet will still enjoy a lower tax rate than their secretaries!
But there is something in this “compromise” that benefits those who aren’t super wealthy right? What about the one-year 2% payroll tax cut? The payroll tax is regressive so cutting it must be beneficial to the poor shouldn’t it?
It turns out that for individuals making less than $20,000 and families making less than $40,000 the payroll tax cut will actually amount to a tax increase. That’s because in order to pay for the payroll tax cut, this “deal” eliminated the Making Work Pay credit. For individuals making less than $20,000 and families making less than $40,000 their payroll tax savings are less than the $400 or $800 they will lose from the elimination of the Making Work Pay credit.
“It will come to a few dollars a week,” said Roberton Williams, an analyst at the nonpartisan Tax Policy Center, “but it is an increase.”
But the real damage that the payroll tax cut could do to the poor, and the middle class as well, is the threat it poses to Social Security. As many of you probably know, payroll taxes are the only source of revenue for the Social Security trust fund. So cutting the payroll tax really amounts to a loan with a horrible interest rate. A loan that will have to be paid back when poor and middle-class Americans are at their most vulnerable, in their old age.
Democrats have never allowed the payroll tax rate to be cut, even temporarily, in the history of the program. So this is a victory Republicans have literally been trying to achieve for generations. “Once something like this goes into place, a year from now, when it expires, it’ll be portrayed as a tax increase,” said Sen. Bob Corker (R-TN). So in a body like Congress, precedents matter and this is setting a precedent. I think that certainly is going to create some problems down the road if it passes.”
Obama has just made the job of Social Security propagandists like Pete Peterson much easier because the payroll tax holiday only worsens Social Security projections. Projections which currently indicate that the program will pay full benefits until 2037 and 80% of benefits after that until 2086. And is anyone really confident that Obama will be able to withstand Republican pressure to make the payroll tax cut permanent? Especially given how quickly and fully he capitulated to them on the extension of the Bush tax cuts for the wealthy? This is a dangerous precedent indeed. Further reducing Social Security revenue at a time when the program is already under attack from the Washington establishment might be the final nail in its coffin. Tax increases for the poor, staggering tax cuts for the rich, and a chance to weaken Social Security? No wonder Obama finally achieved bipartisanship, this plan is a Republican wet dream! Change the rich you can believe in!Click here for reuse options!
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