Making a judgment on the tax deal

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What should progressives think about the proposed tax and unemployment insurance deal announced by President Obama? Here are some quick notes, meant as background resource for the discussion - more of a blog posting than an organized article.

Some disclaimers:
1) I have not studied the plan in detail, nor much of the commentary.
2) If I was in Congress, I don't know how I would vote. See the final paragraph.
3) I don't discuss the need for organized mass movements. So far, massive protests and general strikes in Greece, France, Portugal and Ireland have not defeated austerity programs there. But it is certain that without massive organization and mobilization, neither the workers in Europe nor those in the U.S. can win. Far too much attention is paid to quarterbacking presidential and congressional tactics.

A few background facts

* The economic crisis continues for the majority of working families.
* The richest 1 percent have seen their income triple in the last 20 years. Most of the rest of us have stood still or moved backwards.
* The Bush tax cuts did little to stimulate the economy - the recovery from the Bush-II recession was the weakest since World War II.
* The Clinton tax increase on the wealthy in 1993 did not hurt the recovery from the Bush-I recession. That recovery resulted in the lowest unemployment in decades.
* Corporate profits are at record levels, Wall Street bonuses still in the stratosphere, and the super-rich are rapidly regaining the dizzying heights they occupied before the current crisis hit.

Some things in the deal that are bad

* Provides tax breaks for the super-rich - money they don't need. Giving more money to rich people might boost sales of luxury cars or even yachts. But it is likely that the CEOs of Goldman Sachs, JPMorgan Chase, ExxonMobil, and News Corp. (Robert Murdoch) - each of whom will receive more than $1 million from this deal - already have as many yachts as they need. This does little to stimulate the economy, and increases the wealth and power of a class of people whose actions are increasingly destructive to the economy and the general welfare.
* Allows a huge $5 million to $10 million exemption for inherited wealth, and a very low rate of 35 percent above that. Allows further growth of a parasitic, hereditary aristocracy in the U.S.
* Continues the hedge fund managers' loophole and special treatment of capital gains and dividends, rewarding rich people for gambling in the financial markets.
* Allowing corporate tax deductions for 100 percent of new investment is a giveaway. It creates very few jobs, at high cost.

Some things in the deal that are good

* Avoids increasing taxes on working families. A worker making a typical wage will avoid a tax increase of about $800 a year.
* A 2 percent reduction in the payroll tax, thereby increasing workers' take-home pay. This replaces the more progressive Obama stimulus "making work pay" credit.
* Continues a college tax credit, and a few other good things.
* Extends for another year Temporary Extended Unemployment Compensation (TEUC - extended unemployment benefits for up to 99 weeks).

Defending and condemning

President Obama defends the deal. "This isn't an abstract debate," he said. "This is real money for real people and it will make a real difference in the lives of the folks who sent us here. I'm not here to play games with the American people or the health of our economy. My job is to do whatever I can to get this economy moving. My job is to do whatever I can to spur job creation. My job is to look out for middle-class families who are struggling right now to get by, and Americans who are out of work through no fault of their own."

Any criticism of the deal that ignores the issue of Temporary Extended Unemployment Compensation is irresponsible. If you condemn the deal, you have to explain how you will win the fight for unemployment benefits for over 4 million families, 1 million of whom have already been cut off.

Getting the economy moving: how?

On the other hand, the president says, "My job is to do whatever I can to get this economy moving. My job is to do whatever I can to spur job creation." But although this deal prevents some backward motion, it does not include any of the urgently needed measures to accomplish those goals (getting the economy moving and job creation). Those measures were never even on the table for negotiations. I agree with Campaign for America's Future leader Robert Borosage on this point:

"In a period of mass unemployment, the result of failed conservative economics, we get in return a largely conservative recovery package built around tax cuts. No public investment to create jobs. No aid to states and localities to save the jobs of teachers and police. No investment in new energy to keep us from defaulting in the race to capture a slot in the green industrial revolution." Borosage goes on to acknowledge the positive features of the deal.

Sen. Bernie Sanders, I-Vt., also makes the point: "... if we're serious about creating jobs in this country, which should be our main priority, that's one of the worst ways to do it. [It's] much better to take that money, invest in our roads, bridges, railroad systems, infrastructure. You create jobs doing that."

Deficit argument is a mistake

Progressive critics of the deal make many good points about its weakness. But they tend to emphasize the budget-busting aspects. This is a mistake.

For example, Congressman Peter Welch, D-Vt., calls the plan "fiscally irresponsible. Adding $700 billion to our national debt, as this proposal would do, handcuffs our ability to offer a balanced plan to achieve fiscal stability without a punishing effect on our current commitments, including Social Security and Medicare." Nancy Pelosi issued a statement saying, "Any provision must be judged by two criteria: does it create jobs to grow our economy and does it add to the deficit?"

As a growing number of economists agree, including some conservative ones, deficit spending is both necessary and good for the economy as a temporary measure. As economist Dean Baker sums it up: "Of course we would be much better off if the $50 billion going to the rich each year instead went to other purposes, such as preventing cutbacks by state and local governments or rebuilding infrastructure, but if the question is whether the economy will do better with the tax cuts or a smaller deficit in 2011 and 2012, the answer is that we will unambiguously do better with the tax cuts to the rich."

And, we might add, the extension of unemployment insurance and tax breaks for working families are a positive good, not just a necessary evil.

By using the deficit as an argument, progressives give ammunition to the Republicans when, early next year, they will attack every useful government program in negotiations over raising the debt limit. Whatever was gained in this deal, and more, could be lost in this coming battle.

Whatever the politics, the economics of this are clear. While the economy, and the working class, are suffering from an economic depression, the deficit is not a problem. Deficit spending is necessary to overcome the crisis. The main problem with tax cuts for the rich is not that they cost $50 billion per year. It is that the $50 billion, and more besides, would be much better spent on other things.

Making a judgment

Spending money on tax cuts for the rich stinks. It is offensive to the majority of working Americans who are suffering in this economic crisis. And it is bad economics. But if it is a price necessary to continue unemployment benefits for millions of families, and to prevent a tax increase for all workers, it might be worth it.

The real weaknesses of the compromise are not what it contains, but what it does not contain. Federal intervention is urgently needed to prevent massive spending cuts and tax increases at state and local levels. Federal intervention is urgently needed to directly fund infrastructure and other jobs-producing, useful and necessary investments. But there is a real threat that the corporate-based ruling class, acting through the Republican-Blue Dog block in Congress, will go in the other direction.

They will try to prevent any of the necessary actions, and attack Social Security, Medicare, health care, education, and every program that benefits the people. To the extent they are successful, recovery from the economic crisis will be difficult, and the likelihood increases of a deeper depression, with double-digit unemployment, continued foreclosures and evictions, and deterioration and breakdown of local government services. The political judgment of the compromise should be, at least in part, based on whether it strengthens or weakens the forces that are opposing this corporate-Republican plan.

Photo: Jobless workers wait in line for information on unemployment benefits and job listings in Las Vegas this September. (AP/Julie Jacobson)

 

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Comments

  • The payroll tax cut is likely a stealth attack on Social Security. The making work pay tax credit was better in that respect, also more progressive, could be made larger.

    Congress would likely be forced to extend emergency unemployment benefits anyway. Most Americans support that. Democrats could bring it up for a vote every day until it passes.

    Worst of all may be the cut in the estate tax rate to 35%.

    We best move forward with forward thinking government spending programs, not tax cuts. This deal involves more revenue than the 2009 stimulus, but provides less actual stimulus because of giveaways to the top.

    Posted by Charles Peterson, 12/15/2010 12:25pm (3 years ago)

  • Another thing we will have to fight in the 2012 campaigns, is the funds created for the wealthy, by these tax cuts. We know this, so we have to account for it in our planning. We are creating more friends than we are enemies in this process.We know that the big bucks contributers spent in the just completed elections, came from the Bush tax cuts. I think Persident Obama made it clear his priority was to take care of the midleclass and poorer citizens as soon as possible. There is no other way available at this time. There is no time for bickering, when food and medication are needed.

    Posted by Max Rader, 12/12/2010 8:58pm (3 years ago)

  • This deal was hatched to prevent the total destruction of the Obama Presidency. The GOP does not care about getting more money for the wealthy at this point. The real goal was to let the tax extensions expire so the middle class would have to pay more in tax in 2011. The GOP could then shout from the rooftops and talk radio that middle class taxes skyrocketed because Obama and the Dems declared class war. The GOP could then run Jeb Bush in 2012 instead of 2016. Can't progressives see this? Obama saw the trap and got a reasonable deal for the workers considering nothing can get done without 60 votes. If the economy improves in 2011-2012 and Obama's numbers go up, then he is better situated to fight tax extensions for the wealthy two years down the road.

    Posted by Wayne Tobin, 12/12/2010 12:42pm (3 years ago)

  • The real weakness of the compromise is that it is a compromise. Obama continually compromises with his (and our)enemies who NEVER compromise and never have any intention of compromising. Obama begins compromising even before negotiations begin, tossing his strongest positions overboard before he even sits down at the bargaining table (as with the public option during the health care debate). He must have been the worst community organizer in history. Saul Alinsky must be spinning in his grave!

    Posted by John Whiskey, 12/09/2010 10:03pm (3 years ago)

  • @Emile Schepers

    "To those who pan this article, the question, as Art says is: What about the 1 million, soon to be 4 million and then who knows how many, who have used up their unemployment comp and have no idea what to do next?"

    Yeah, what about them? The Obama/GOP tax deal doesn't include an unemployment extension for the 99rs. There's nothing for them in the bill. Look it up, if you don't believe me.

    Also, because the bill doesn't renew the Make Work Pay tax credit, individuals with incomes up to $20,000 and families with incomes up to $40,000 will see a net tax *increase*.

    Knowing that, HOW can anyone think any further of supporting this fiasco?!?

    Posted by Trailer Trash, 12/09/2010 7:46pm (3 years ago)

  • Art, thanks for the thoughtful comments. To those who pan this article, the question, as Art says is: What about the 1 million, soon to be 4 million and then who knows how many, who have used up their unemployment comp and have no idea what to do next? To have millions of people thrown into such desperate straights that they will work for food is very harmful to the working class struggle. It undercuts the position of the rest of the working class, harms organized labor (which will be under ferocious attack in the new House of Representatives) and harms any hope of an economic recovery because people who are sleeping on the street and eating at soup kitchens can not spend money in the domestic economy. So extending unemployment benefits had to have been the highest priority here. That billionaires get tax breaks is outrageous, but how else could this goal have been accomplished? I may change my mind as more info about what went down politically comes out, but I don't see a choice here.
    That said, I don't think we should be uncritical about how the White House and the Democratic Party leadership have been approaching these things. As I have said elsewhere, I am not of the school of thought that when the Republicans do something evil, it is because of their reactionary ideology and their loyalty to the interests of international monopoly capital, but when the Democrats do something evil, it is only because the Republicans give them no choice. This has not been what I have seen in decades of working in electoral politics in Chicago where there are so few Republicans that at election time, the GOP has to ask the Democratic Party to loan it some election judges. There are plenty of Democratic Party politicians whose actions are guided by their own ties to various narrow business interests, from international finance capital to local contractors who haul away the trash in their districts, and get juicy contracts after making the appropriate campaign contributions. Development of appropriate tactics by the left can't be based on either "not a dime's worth of difference between the donkey and the elephant" or "Republicans bad, Democrats good".
    So the way the Obama administration's legislative actions have developed since January 20 2009 should certainly be critiqued, but on the basis of scientific analysis and correct information, not emotional reactions no matter how understandable.

    Posted by Emile Schepers, 12/09/2010 5:09pm (3 years ago)

  • This responsible article has in addition to the background facts outlined,a multi-trillion dollar military-industrial-complex encircling humanity with nuclear and non-nuclear armaments,and while we debate whether millions will eat,or let thousands make and hoard billions of greenbacks,we cannot allow the working class not to know this-as part of the backdrop.
    It is the government of the United States of America which promotes this modern atrocity.
    For decades,the CPUSA has decried the taxation without representation fowarded simultaneously with this military-industrial-complex genocide against pivotal elements of the working class in the United States:women,youth,Latinos,Native Americans,African Americans and the elderly through the governmental super-structure of Yankee imperialism-converting it,again,to genocide of working and native peoples abroad.
    Destroying; Cubans,Haitians,Dominicans,Palestinians,Israelis,Puerto Ricans,Venezuelans,Hondurans,Afghanistanians,Iraquis,Indians,Pakistinians,Vietnamese,Koreans,Japanese,Panamanians,Phillipinos,Laotians,Chinese and many more. This military-industrial-network also aiding and abetting fascist movements in Germany,France,Britain,Spain,and Italy.
    From the brilliant work of Hyman Lumer to the stellar activism of Joelle Fishman-who recently connected this war machine to the lack of human needs being met in our communities,to wit:"holding extension of unemployment benfits for two million people hostage so a handful of billionaires can get even more tax breaks"an indictment of the Republicans and "an indictment of the capitalist system that is based on insatiable greed."
    While we can agree with brother Art Perlo,that deficit emphasis is a big mistake,it is more than just that,there is the substance to fund jobs in our government-again,sister Fishman,reminiscient of the democracy with material resources for people,urged by a Lumer,a Du Bois or a Robeson,against war-"The way to solve the deficit is put people back to work,repair our communities,open youth centers,invest in public education and helth care,strengthen Social Security,pass comprehensive immigration reform,end the wars and redirect those funds to rebuild our nation's infrastructure."
    This part of the background cannot be neglected,for we need profound solutions for the people of the United States of America.

    Posted by E.E.W. Clay, 12/09/2010 2:17pm (3 years ago)

  • As for cutting the Social Security contribution, there is a coalition against it spported by the AFL-CIO and Alliance for Retired Americans among others. They say it won't be put back where it was after a year because that will be election and not a time to do it. Social Security fund will be hurt.

    Posted by Pammela J. Wright, 12/09/2010 1:25pm (3 years ago)

  • There are good valid points about the tax-compromise, but... It shows Obama's bluffing hand at willing to protect the middle class. True he got more tax-cuts for families, and for colleges, but what about the people who ahve fully exhausted their unemployment benefits: THE 99ers! What do they get? This MILLIONAIRE BAILOUT only exposes the republicans for what and who they are for: CORPORATE AND SPECIAL INTERESTS! The working poor and the middle class will ahve to burden this for another 2 years while many rich and wealthy get to funnel and save their money towards more accumulation and luxury spending. Everytime I see diamond commercials, I just comeback to the reality of this: THE RICH GET RICHER, AND THE MIDDLE CLASS GETS A LIFELINE! IT'S GONNA BE A HEATED DEBATE IN THE COMING YEARS, AND EVEN THOUGH FOR SOME IT WILL STIMULATE THE ECONOMY, BUT FOR 99ERS? WE NEED TO HELP US AS WELL, WE SUFFER ALSO!

    Posted by donald pasley, 12/09/2010 7:43am (3 years ago)

  • What should the people’s response be to this deal?

    First of all, demonizing Obama is counterproductive. Whatever we think of the compromise, our response must focus on the issues not on Obama’s personal weakness. The real weakness is in the movement. Where are the massive demonstrations? Where is the concerted mobilization around demands for direct job creation? Even though such demonstrations in Europe against making the working class pay for the capitalists’ crimes have not yet succeeded, as Art points out, there is not likely to be serious progress in their absence.

    Second. What could Obama’s plan B, C, etc. be instead of the compromise? The putative goals were to extend working family tax breaks, ending tax breaks for the rich, extending unemployment compensation. A jobs program wasn’t even on the table. What evidence is there that the Republicans would back down to avoid raising taxes on the working class and to avoid throwing thousands of workers off their unemployment lifeline? Who has evidence that they care? Do they need to care if they can successfully pin the blame for everything that goes wrong on Obama and the Democrats, “the socialists?” Could Obama have bargained more forcefully and gotten more? Where is Obama’s leverage? He certainly can’t successfully argue with the Republicans on behalf of what is good for the economy or what is good for those suffering the most. The right wing care less. They’ll happily see higher unemployment as long as profits soar, as long as the rich are being further enriched. As long as they can pin the blame on Obama. Obama can veto Republican-desired legislation, like military spending. But most Democrats also favor military spending. Many in Congress see military spending as a jobs (and profits) program. The military contracts and/or bases are in every Congressional district. Not likely to happen. Won’t the Republicans and Democrats continue to fund war and military even if the Republicans maneuver to shut down the rest of the government?

    There were major battles in the last 2 years on no-brainers like comprehensive health insurance, the stimulus package, regulating Wall Street. The Republicans and their corporate media megaphones whipped up opposition to programs that should have been broadly supported. And during those battles Obama had Democratic majorities, although importantly not progressive majorities.

    We know what the labor and other movements should be doing? What can Obama do? He can do what he did in the too-late final months before the November election – travel around the country speaking out on behalf of creating jobs and taxing the rich, although he failed to push any specific jobs legislation. He can propose progressive legislation and lobby with the American people for it. He can replace some of his neoliberal, wall-street-crony economic advisors with progressives. He can propose to end the wars and spend the money on jobs at home. Why should he? What evidence do we have that any of these is in his toolbox? It is unlikely we will see any progress on these fronts without a powerful, combative people’s movement.

    Finally, don’t the payroll tax cuts negatively impact the Social Security fund? If this piece reduces the current fund it will provide grist to the privatizers and benefit cutters.

    Posted by HenryL, 12/09/2010 6:37am (3 years ago)

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