Another view of the Obama Tax compromise

Testing the tax compromise

Excerpts:

First, the Bush tax cuts. If they expire in total, everybody agrees the country is in for a heap of hurt. Therefore, up or down, should we let the tax cuts expire? A two-part question, middle class [sic] and filthy rich. There is virtually unanimous consent on the so-called middle class tax cut so keep it, don't let it expire. The so-called millionaire's tax cut? No consensus so let it expire and judge the consequences when the new congress is seated. If necessary, and I think it will be necessary, reinstate it.

Second, extending unemployment insurance. This is obviously a contradiction in terms. Any insurance element to unemployment payments has long since been blown away. Unemployment payments are popular but contrary to sound fiscal policy. Scott Brown, you are half right when you insist on using existing monies to pay for this. ... When I was unemployed and my benefits ran out, I became much more aggressive (and successful) in job hunting.

Third, payroll tax reduction. As I understand this, it is a 2% reduction in the Social Security tax payment for the worker. (I would save $2,200 a year. The total cost to the deficit - $120,000,000,000) Does this mean that we are finally doing away with the fiction that Social Security has a trust fund and a guaranteed funding stream? I think it does. Social Security can now be recognized as the massive welfare program that it actually is, an entitlement in urgent need of reform. Do not cut Social Security funding arbitrarily at this time.

Comment: More ... read the whole thing (mentions Ethanol funding which I oppose. I haven't completely sorted through the proposal. Since my income is less than $ 250K, it would be easy to say "tax the very rich (you know people not like me!)" I am concerned about the reduction of the funding for social security. Hey that program is underfunded as it is. The unemployment insurance: This phrase is accurate: "obviously a contradiction in terms. Any insurance element to unemployment payments has long since been blown away". Yet I feel for those who are unemployed.

Obama and Clinton: Advocates of the Bush Tax Cuts

Clinton and Obama for Bush

Excerpts:

We thought we'd seen everything in politics, but yesterday was truly miraculous: There in the White House press room was none other than former Democratic President Bill Clinton appearing with current Democratic President Barack Obama to endorse the tax cuts of Republican George W. Bush.

"In my opinion, this is a good bill, and I hope that my fellow Democrats will support it,'' Mr. Clinton said in praise of the Obama-Republican tax deal that would extend the tax rates on capital and upper incomes that passed in 2001 and 2003.

...

Both Democrats have devoted most of their political lives to denouncing such tax cuts—for their injustice, for increasing the deficit, for any other ill you can imagine. But 9.8% unemployment half way through a Democratic President's term tends to discombobulate the partisan mind. So Barack brought in Bill to help persuade a liberal Democratic base that is having a harder time forgetting two generations of anti-rich populism. Or as Mr. Clinton once famously said, "You gotta do what you gotta do."

Comment: Irony of ironies!

Dems on Tax Cuts: "Could Have, Would Have, Should Have"

A What-If on the Bush Tax Cuts

Excerpt:

In retrospect, an extension of the high-end Bush tax cuts seems to have become inevitable shortly after Labor Day.

When Congress returned from its August recess, some Democrats and White House officials were pushing for a vote on the tax cuts. But other Democrats didn’t like the idea. They thought a vote in the heat of the midterm campaign would hurt Democrats running in tough races.

So Obama administration officials and Congressional leaders delayed the issue until after the election. The Republicans then won the election, and Democrats were left with a choice between all the tax cuts or none of the tax cuts. Republicans, who did not hold the White House, could more credibly threaten to let all the tax cuts expire, even if a weak economy became weaker.

What could the Democrats have done differently?

For starters, they could have begun working on the issue well before September. As Ezra Klein has written, “it’s worth remembering that Democrats have known about the expiration of these cuts for 10 years now. If they wanted to create their own middle-class tax cut to replace Bush’s expiring program and make sure they got the credit from the voters, they could’ve done that.”

Comment: Upcoming scenarios (2012):

1. Mr. Obama and his Republican opponent in 2012 both campaign on the issue, but nothing happens before the election. One party wins a resounding enough victory that it gets its way after the election.
   
2. Nothing happens before the 2012 election. Mr. Obama wins re-election, but Republicans retain the House and maybe even take the Senate. The two parties then engage in the showdown many liberals wanted this time around, in which Mr. Obama refuses to sign any extension that includes the high-end tax cuts. Everyone’s taxes rise in 2013. They remain higher — helping reduce the deficit — or one party eventually stands down.
   
3. Congress and the White House manage to agree on an overhaul of the whole tax code before 2013, as various deficit panels have urged. Rates fall for all taxpayers, while various deductions are eliminated. The Bush tax cuts become an anachronism.
   

I’m guessing that Option 3 is the least likely.

Final comments: The Dems lost the opportunity to control the agenda. Had they acted in September - October, it could have tipped the election their way with less losses in the House! Another Pelosi failure!

The Obama - Republican tax deal

How The Deal Affects Taxpayers

Note:

its passage by Congress isn't assured.

Comments:

• The Democratic left is infuriated!
  
• Proves that neither the Republicans nor the Democrats are concerned about the growing Federal Deficit
  
• Endangers Social Security
  
• Will make taxes one of the major issues of the 2012 Presidential race
  
• Shows how weak the President has become (or strong the Republicans!)
  

Final comment. No one wants higher taxes and I'm not one who wants higher taxes either. But this is more borrowing to spend ourselves out of this economic funk! The next generation will pay

If no bill passes in the next 10 days ...

Nancy Pelosi's Unwelcome Christmas Gift

Excerpt:

Since neither Mr. Obama nor Mr. Reid seem willing to force her to back down, Congress could go home without stopping the largest tax increase in the nation's history.

If that happens, every worker will receive a smaller paycheck in the New Year. This will happen regardless of what action the new Congress takes—because the Treasury Department must very soon send employers and payroll processers instructions for 2011 tax withholding. If no bill passes in the next 10 days, the Treasury Department will have to assume the Bush tax cuts expire and order more withheld from everyone's pay.

The impact would be dramatic. H&R Block's Tax Institute, for example, has estimated that a married couple earning $80,000 will receive $221.48 less in each bimonthly paycheck starting in January, just when Christmas bills show up.

Then there are the households—as many as 27 million—that the Congressional Budget Office says may get walloped by the Alternative Minimum Tax if it is not adjusted to exempt middle-class earners.

Congress normally enacts a so-called patch to the AMT early in the calendar year. But this year Mr. Obama and the Democratic Congress dawdled. Even if the new Congress patches the AMT in January, Internal Revenue Service Commissioner Douglas H. Shulman warns that one of every six taxpayers may be prevented from filing returns early or getting timely refunds as his agency scrambles to gear up for the change.

Taxpayers could end up forking over tens of billions that they'll eventually get refunded once the IRS sorts it all out—but in the meantime consumer spending, job creation and the economy will take a hit.

If Congress fails to act on the expiring Bush tax cuts, the new GOP House majority that takes office Jan. 4 will immediately act to extend the Bush tax cuts, retroactive to New Year's Day. It will also patch the AMT to protect taxpayers' 2010 earnings. The Republicans' bill will likely gain Senate passage and Mr. Obama's reluctant signature.

But it will take weeks to reprogram payroll computers and months to work through the IRS's difficulties. That's a bad way for the economy—and the president—to start the year.

Comment: Prediction .... Gridlock with the lame duck congress!

While Pelosi fiddles!

Delaying Tax Vote Could Crash Stock Market

Excerpt:

Failure by Congress to extend the Bush tax cuts, especially locking in the 15 percent capital gains tax rate, will spark a stock market sell off starting December 15 as investors move to lock in gains at a lower rate than the 20 percent it would jump to next year, warn analysts.

While it is unclear how bad the sell off could be, it could wipe out the year's gains, they warn.

"Capital gains tax rate will increase from 15 to 20 percent if the tax cuts are not extended. The last time the capital gains tax rate increased--on Jan. 1, 1987 from 20 to 28 percent--investors realized their gains at the lower tax rate," said Daniel Clifton at a Washington partner at Strategas Research Partners. "We would expect a similar effect this time around as investors see the tax rate going up and choose to realize their gains and incur the 15 percent tax."

In a memo to clients, Clifton says that the date most clients are focused on is December 15th for a deal in Congress before beginning to sell. One reason: Many stock options expire that day and investors have to act.

Comment: This lame duck congress doesn't seem to be able to get much done!