Tuesday, January 25, 2011

While Super-Rich Get Tax-Cut Extension, Middle Class Get Rude Surprise: A Tax Increase

Republicans Not Only Forced Obama and the Democrats to Extend Bush-Era Tax Cuts for the Super-Rich, They Also Blocked an Extension of Obama's Little-Known 2009 'Making Work Pay' Tax Credit for the Middle Class, Resulting in Smaller Paychecks Since the Start of the Year -- and Continuing the Mutation of GOP Into 'Party of, By and For the Rich' Since 2001

"HEY! WHY AM I TAKING HOME LESS MONEY?" -- That's the question that millions of middle-class Americans are asking as they've been confronted with suddenly smaller paychecks since the new year began. Despite the much-publicized extension of the Bush-era tax cuts, middle-class Americans saw their federal taxes go up anyway. The reason: The Republicans in Congress refused to allow an extension of President Obama's little-publicized "Making Work Pay" tax credit for the middle class that Congress passed in 2009 -- causing the credit to expire at the end of 2010. It's the latest in a series of moves by Republicans dating back a decade to shift the tax burden away from the wealthy and toward the middle class. (Cartoon courtesy Wordpress.com)

(Posted 5:30 a.m. EST Tuesday, January 25, 2011)


When President Obama signed into law the highly controversial extension of the Bush-era tax cuts, it was thought that a massive across-the-board tax increase had been averted.

For weeks after Republicans took control of the House and increased their numbers in the Senate in the November midterm elections, Obama and congressional Democrats insisted that the Bush tax-cut extension be applied only for low and middle-income taxpayers. But Republicans insisted that the extension be applied to all taxpayers, including the nation's millionaires and billionaires.

Senate Republicans all but shut down the upper chamber, refusing to allow votes on any bills unless and until the Bush tax cuts were extended across the board.

Confronted with the GOP's intransigence -- and facing a massive tax increase at the start of the new year -- the president and congressional Democrats agreed to the Bush tax-cut extension, despite fierce opposition by liberals, including an old-fashioned, "Mr. Smith Goes to Washington"-style filibuster by Senator Bernie Sanders (I-Vermont), that lasted for nine hours.

But if you thought that a massive tax increase had been averted, think again. Since the beginning of the new year, millions of middle-class Americans received a rude surprise when they opened their pay envelopes: Their taxes went up anyway.


And for that, you can thank a combination of Republican intransigence in Congress, the Obama administration and congressional Democrats' lack of backbone and the mainstream media's dereliction of duty to inform the public.

A little-publicized provision in President Obama's much-publicized American Recovery and Reinvestment Act of 2009 -- better known as the federal stimulus package -- provided a two-year, $116 billion "Making Work Pay" payroll tax credit for middle-class taxpayers.

Single taxpayers earning $75,000 a year or less received a $400 tax credit. Couples earning a combined $150,000 a year or less received an $800 tax credit.

While Senate Republicans used their filibuster power to hold all legislation hostage until Obama and the Democrats agreed to an extension of the Bush tax cuts for millionaires and billionaires, they adamantly refused to allow any extension of the Obama payroll tax credit for the middle class.

Neither the White House nor congressional Democrats -- having been effectively whipsawed by the Republicans into extending the Bush tax cuts for the super-rich -- were willing to put up a fight to retain the Obama middle-class tax credit.

As a result, the credit expired at the stroke of midnight on New Year's Eve and the payroll (federal withholding) taxes of millions of middle-class Americans went back up to their 2008 levels, reducing their take-home pay. In many cases, take-home pay went down despite a reduction in middle-class Americans' Social Security (FICA) taxes.

The death of the Obama middle-class tax credit is the latest in a decade-long series of moves made by Republicans that have resulted in a shifting of the federal tax burden away from the wealthy and toward the middle class, according to an analysis by the non-partisan Congressional Budget Office compiled in 2004, when the Republicans controlled Congress -- and the CBO was headed by a former Bush administration senior economist.


In truth, there was no real effort by congressional Democrats to extended the "Making Work Pay" tax credit for middle-class Americans since last summer, when Obama proposed extending it.

Part of the problem was that the credit received very little publicity in the run-up to the passage of the stimulus package in February 2009 and the credit didn't go into effect until after the tax-filing deadline the following April. Because of the lack of publicity, few taxpayers were aware that the credit even existed, in spite of the fact that it covered 75 percent of all taxpayers.

The lack of awareness of the "Making Work Pay" tax credit was made even more evident during the battle over extending the Bush tax cuts. Much was said and written in the mainstream media about the fight over extending the Bush tax cuts to the nation's millionaires and billionaires. But there was almost nothing said or written in the mainstream media about extending the Obama tax credit to the middle class.


"The most curious aspect of the tax debate is the obsession with taxes at the high end," said Chuck Marr, director of federal tax policy at the liberal Center on Budget and Policy Priorities, in an interview last July with CNN. "But when almost every middle-  and lower-class American is going to face higher taxes, nobody's talking about it.

"Most people may have no idea they received it [the Obama tax credit] and no idea that it's going away," said Marr. "But what you can be certain of is that they'll have less money [in 2011] and they'll spend less -- and this is a terrible time for the economy to lose $60 billion of [consumer] spending."

Consumer spending accounts for 70 percent of the U.S. economy. But if 75 percent of American consumers are middle class -- and they get hit with higher taxes -- they're going to be forced to cut back on spending, exacerbating a sharp decline in spending by middle-class consumers already squeezed by high unemployment, which has remained stuck at over nine percent for more than a year and a half.

And that doesn't include the estimated 2.6 million long-term jobless Americans who, out of frustration, have given up looking for work and are no longer counted in the jobless figures, according to the Labor Department's Bureau of Labor Statistics. When you factor in those "discouraged workers," the jobless rate actually exceeds 11 percent, the worst since the record 25 percent jobless rate during the Great Depression.


Indeed, according to Bloomberg News, an increase in consumer spending in the latter half of 2010 has been almost entirely driven by the rich, with middle-class consumers continuing to hold back.

Sales at such luxury retailers as Tiffany's and Coach Inc. rose as wealthy consumers -- reaping a windfall from rising stock-market prices -- snapped up expensive items such as $6,000 diamond pendants and $1,200 leather handbags, the financial-news service reported.

On the flip side, more middle-class consumers are flocking to discount retailers such as Walmart, Big Lots and Dollar General -- and even to nonprofit thrift stores such as Goodwill, long a magnet for low-income shoppers -- as more and more "everyday Americans" are forced to live from paycheck to paycheck, a Walmart spokesman said.

Meanwhile, the Census Bureau estimates the poverty threshold for 2010 was $22,314 for a family of four, up from $21,954 in 2009.

"It’s striking," Dean Baker, co-director of the Washington-based Center for Economic and Policy Research, told Bloomberg News. "Most of the rest of the country is still suffering while the wealthy seem to be largely insulated. You would think they wouldn’t have all that much to complain about. Instead they’ve had unending criticism for the Obama administration."


Incredible as it may seem, it was just a decade ago, as George W. Bush was sworn in as the nation's 43rd president after a hotly contested election (that some still dispute to this day), when the federal government's coffers were brimming with a record $236 billion surplus left by Bush's predecessor, Bill Clinton -- despite conservatives' stubborn, revisionist attempts to deny its existence -- whose presidency was marked by the greatest economic expansion in the nation's history.

The Republican Party has had a reputation as the party of big business since the 1880s; under the presidency of Ulysses S. Grant, the GOP became known for its strong advocacy of commerce, industry, and veterans' rights.

That reputation solidified in the 1920s, as the GOP, running on a platform of non-involvement in foreign affairs and non-interference in private enterprise, kept control of the White House throughout the decade -- until the Great Depression cost Herbert Hoover the presidency with the landslide election of Franklin D. Roosevelt that ushered in 20 years of Democratic control.

But under Bush, the Republicans mutated from being the party of big business into being a Robin Hood in reverse -- the party of the rich, by the rich and for the rich, with its naked determination to preserve the wealth of the nation's millionaires and billionaires -- who make up only two percent of the nation's population -- at the expense of the middle class.


In the process, the Republicans ran up staggering budget deficits under Bush that dwarfed the previous then-record red ink under Ronald Reagan in the 1980s. But when it comes to dealing with the federal deficit, there is a huge difference between Ronald Reagan and George W. Bush.

As Reagan himself said, in an attempt to quote John Adams in 1988, "Facts are stubborn things." And there are several stubborn facts about Reagan and federal deficits that today's Republicans have chosen to ignore, but, in Adams' words, "they cannot alter the state of facts and evidence."

Reagan's $275 billion in tax cuts of 1981-82 were made when the economy was mired then, as now, in a severe recession, which saw unemployment peak at 10.4 percent. But when the economy recovered in 1983-84, Reagan took back nearly $133 billion of those cuts by raising taxes in order to reduce the deficit -- and he did it with the solid approval of his fellow Republicans who controlled both houses of Congress. That is a fact that today's Republicans cannot sweep under the rug.

Not only did Reagan raise taxes to cut the deficit after the economy recovered from the early 1980s recession, he also vetoed scores of GOP-passed spending bills for the rest of his presidency, whereas Bush didn't wield his veto stamp at all -- until the Democrats took control of Congress in 2006. That, too, is a fact that today's Republicans can deny all they want, but cannot erase.


So what happened to the Republican Party in the 20 years between Ronald Reagan's election and George W. Bush's? Simply put, it was taken over by a generation of unabashed "greedheads" -- people who made their fortunes in the Wall Street boom of the '90s and were likely influenced by the "Greed is Good" mantra of the fictional Wall Street trader Gordon Gekko (played by actor Michael Douglas) in the blockbuster motion picture "Wall Street."

As Bruce Bartlett -- a former domestic policy adviser in the Reagan administration and a Treasury Department official under Bush -- recently wrote on his blog, "It may come as a surprise to some people that once upon a time in the not-too-distant past Republicans actually cared enough about budget deficits that they thought raising taxes was necessary to bring them down. Today, Republicans believe that deficits are nothing more than something to ignore when they are in power and to bludgeon Democrats with when they are out of power."


The greedheads in charge of the GOP made their mark in 1999 when they pushed through the repeal of a key provision of the Glass-Steagall Act, a Depression-era law that that prohibited a bank holding company from owning other financial companies.

Glass-Steagall put up a wall of separation between the highly speculative Wall Street investment banks and the more conservative Main Street consumer banks. Its repeal by the Republican-sponsored Gramm-Leach–Bliley Act -- which former President Clinton now admits he should have vetoed instead of having signed it into law -- set the stage for the creation and later collapse of the sub-prime mortgage market that led to the financial meltdown of 2008.


So, as President Obama prepares to deliver his State of the Union address tonight (Tuesday night) before a now-divided Congress -- with Republicans controlling the House and Democrats with a weakened majority in the Senate -- get ready for Phase II of a titanic struggle between Obama and the greedhead-dominated GOP.

And as conservative columnist Charles Krauthammer wrote in a July op-ed column in The Washington Post, Republicans would be making a mistake by underestimating the president.

Aside from repealing the health-care reform law that House Republicans passed last week -- despite knowing full well that the repeal measure will die in the Senate -- the financial reform law passed last summer strikes at the heart of the greedheads' world.

"It will give the government unprecedented power in the financial marketplace," Krauthammer writes. "Its 2,300 pages will create at least 243 new regulations that will affect not only, as many assume, the big banks but just about everyone, including, as noted in one summary [The Wall Street Journal], "storefront check cashiers, city governments, small manufacturers, home buyers and credit bureaus."

Frankly, after the sub-prime disaster, the financial marketplace is long overdue for regulation. So, too, is an end to the fiscally irresponsible Bush tax cuts for the super-rich.

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Volume VI, Number 5
Copyright 2011, Skeeter Sanders. All rights reserved.


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