I was an Obama supporter for a long time. I stated many times in this blog (here, e.g.) that one should support his health care plan even though it had a lot of deficiencies. Like the original version of Social Security, it was far from perfect, but was such a large step in the right direction, and had such potential for becoming widely (and even wildly) popular as it was improved, that it should be enacted while it was still possible to do so. The same was true for the financial protection bill drafted by my congressman Barney Frank.
This latest deal with the PTR, however, is another beast altogether, since it is positively harmful and bows to extremely bad ideas and precedents. Let me be specific.
1. Extension of tax cuts for the very wealthy is unneeded and costly and hypocritical; it also violates one of Obama's campaign promises. First of all, people in the highest tax brackets should never have gotten such a sizable tax cut in the first place. Since everyone else -- those in lower brackets -- had gotten a cut in their taxes, the high income folks already benefited by having their taxes cut on the part of their income falling in these lower brackets.
It goes roughly like this (I'm working from the most recent tax tables for married filing jointly, and comparing them with the tables from before the Bush cuts; I've also rounded the figures a bit).
Bracket (in thousands of $$)
0-17 17-68 68-137 137-208 208-372 372-on up
15% 15% 28% 31% 36% 39.6%
10% 15% 25% 28% 33% 35%
You may wonder where Obama's original $250,000 cut-off came from. That's about what the income would be before the allowance for dependents and other exemptions are taken out, in order to land a taxable income of around $208,000. If the Bush cuts are allowed to expire, those earning below this level would keep their rates (last line of the table) while those earning above would see their rate revert to pre-Bush cuts (i.e. 36% or 39.6% as per the middle line of the table).
NOTE that people earning above $250,000 (or $208,000 after exemptions) would STILL GET the cuts on that part of their income below that amount. This would come to:
5% of (17000) + 3% of (137000 - 68000) + 3% of (208000 - 137000)
In dollars this is more than people in the lower brackets would be saving. Of course, as you can see from the table, the higher income people were making out far better under the Bush plan (that's why they love it). These same people, less than 2% of the population, have enjoyed these cuts on their high incomes for nearly a decade, and are also far less likely to experience financial difficulties now (their unemployment rate is less than 1/4 of the national average). Furthermore, these high income people have a much greater disposable income -- i.e. money above food and shelter and medical expenses, available for spending on "fun" things and luxuries.
Of course, the Republicans claim that these wealthy people "create jobs" with their extra money. As far as I can see, there is not one iota of evidence to suggest that their extra money has any correlation with employment or economic expansion. We had plenty of economic expansion in the more than half-century before Bush II, when the upper-bracket people paid much higher tax rates (even under St. Reagan); inversely, we are very much worse off now, with much higher unemployment and a shrinking economy, after 8 years of Bush tax cuts. Tax cuts for the rich do not help the economy. All the facts and our experience tell us that the Republican claims are sheer nonsense.
Everyone agrees that extending the Bush tax cuts to those making over a quarter million dollars a year will be very costly to the Treasury. Since the effect on jobs and the economy in general will be minuscule if even measurable, it would, in fact, be totally counterproductive to proceed with them as Obama has agreed to do.
2. Cutting the Social Security Tax (FICA) by 2%, while definitely helping middle-class wage earners, is a very bad idea for other reasons. The main argument used by those who want to kill the Social Security program -- or at least severely reduce its benefits -- is that it will run out of money soon anyway. The Social Security Trust fund is owed billions of dollars which the government has "borrowed" from it in order to pay for unfunded (by Congress) wars and other undertakings which were not accompanied by honest and direct appropriations. Cutting FICA will simply make it easier to push this argument. The fact is, the problems of the Social Security system are easily solved simply by raising the income limit on which FICA is applied. The same wealthy people who have benefited most from the Bush tax cuts also pay no Social Security tax on the money they earn over about $106,000 dollars. I have discussed this in previous blogs (here, for example), so I won't repeat the argument again. Since neither Obama nor his commission to solve the "budget crises" (you remember, Erskine Bowles, BS from Morgan-Stanley, and Alan Simpson, ex-senator from Marlboro Country) pushed for this cap removal, Obama's proposed cut in SS tax can only damage the program. It is a stalking horse of those who would destroy one of the most popular and helpful programs ever undertaken by this country.
3. The radical changes in the inheritance tax is yet another sop to the very rich. This is a tax on hereditary wealth that comes directly from the ideals of the Founding Fathers of this country. Those who must pay it on part of their multi-million dollar estates is a tiny tiny percentage of the population -- and its most affluent. If you have merely a couple of million dollars the Inheritance Tax simply doesn't apply to you. Billionaires Warren Buffet and Bill Gates think that the tax is reasonable and oppose lowering it. Obama, though, has agreed to reducing it far beyond the wildest dreams of most Republicans. Even the otherwise wimpish Democratic caucus was appalled. This will cost the Treasury big bucks; yet, the supposed deficit hawks don't seem to be perturbed at all. That's because deficit hawks are not really guardians of the public weal, but rather the front guard of the class war on the middle class.
4. Extension of unemployment benefits is the excuse that Obama gives for throwing more money at the rich. This is an example of an issue that should have been taken to the people and should never have been on the "negotiating" table at all. Those people who lost their jobs in the still-continuing recession did so because very wealthy speculators and banks oversold subprime mortgages and mortgage-backed securities and greedy but ignorant traders misplayed their bets on derivatives based on these securities. A lot of these folks were bailed out by the government in the TARP program, conceived and designed by Wall Streeters, mostly during the Bush years. While the government has recovered most of its TARP money, it didn't recover all, and, in principle, the idea of socialism for wealthy gamblers is not what we generally consider the American Dream. What happened to bailing out those who don't own luxury condos and luxury cars, yet suffered the consequences of the bursting speculative bubble? Obama never should have even considered trading help for them for handouts to those who made out like...how should I put it ...bandits. Whatever happened to that wonderful "soaring rhetoric" of Obama the campaigner. Why the backroom deal with McConnell and Boehner, when he should have gone on national media and demanded help for the unemployed? This was a strong hand that the president folded before a single bet was made.
Obama started out seeking bipartisanship -- a foolish and naive position. The Republicans mostly ate his lunch, even declaring right out in the open that their one and only priority was to make him a one-term president. This outrageous statement went largely unchallenged, though it indicated a degree of cynicism and disregard for the good of the country that is truly radical and unprecedented in its brazenness. Even after all this, Obama is still taking about bipartisanship. Meanwhile, the PTR is eating his lunch on tax equity. When you don't learn from people repeatedly punching you in the face, you are either arrogant or a fool.