Thursday, December 09, 2010

Guess Who Isn't Getting A Tax Cut?

The poor:

Larry Summers, the president's outgoing chief economic adviser, conceded that families earning less than $20,000 a year will pay more in taxes next year, after President Barack Obama agreed with Republican demands to replace the expiring Making Work Pay tax credit with a one year cut in the payroll tax used to fund Social Security and Medicare.

But he argued that there was no hope of avoiding this outcome after the House voted to trim the Making Work Pay credit – one of Obama's central promises in his 2008 presidential campaign. At the same time, Summers said, that the president fought harder to preserve other tax benefits, such as the child tax credit, that will do more to help working families.

Critics of the deal should "look at the totality of it," he said.
The Making Work Pay tax credit is replaced by the payroll tax holiday:

In a White House blog posting, Bernstein called this change "A new, job-creating payroll tax cut for workers: a 2% payroll tax cut for over 155 million workers, providing about $120 billion in tax relief administered through higher paychecks.

"The key word here is "new, " wrote Bernstein "This piece of the agreement goes beyond extending policies that were already in place and is widely recognized as a potent way to generate jobs and growth."

But poor families will lose income, compared to 2010, according to Roberton Williams, an economist at the non-partisan Tax Policy Center,

An individual who earns $10,000 a year would lose half of the $400 he or she received in 2010 under Making Work Pay. Every family earning less than $20,000 a year would end up losing money under the proposal, according to Williams.

On the other hand, taxes will drop dramatically for those earning $95,000 a year or more, who made too much to qualify for the Making Work Pay credit, said Williams. The $400 credit under Making Work Pay starts phasing out for individuals more than $75,000 a year and disappears above $95,000; but under the proposed payroll tax cut, all earners get a 2 percent tax cut, no matter what their total income, up to a maximum per-family credit of $4,362.

A rough estimate is that this new tax cut will deliver from $3,800 to as much as $4,362 for the highest-earning 14 percent to 15 percent of the population. This is a new tax cut, Williams, noted, beyond the continuation of current rates for the wealthy that got most of the attention in the tax debate.
Note the use of Republican framing there by Bernstein: tax relief. Of course we also use the term "payroll tax holiday" for those reductions in payroll taxes which will put the Social Security at an even greater risk of cutbacks in the future, what with there being less money available to pay for it.

Hmm. I'm going to start calling bridges which collapse because of tax "relief" and such "bridges on vacation."