Posted on Monday, December 13, 2010
WASHINGTON — With the Senate poised to hold a key vote on Monday on the tax cut deal between President Obama and Republicans, the political jousting has focused on what the agreement does for the wealthy by extending all of the Bush-era tax rates, and for the unemployed, by continuing jobless aid.
But a hefty portion of the $858 billion tax package will benefit middle- and upper-middle-income Americans — precisely the demographic that felt neglected the last two years as the White House and Congress focused on the major health care law and on helping the unemployed and people facing foreclosure.
These new tax breaks are in addition to the cuts Mr. Obama had always planned to maintain on all but the highest incomes, and they could pay big political dividends to Mr. Obama and other Democrats in 2012 — a point that the president and some senior advisers are counting on, and one reason that they were willing to give in to Republican demands to extend all Bush-era tax rates.
Austan Goolsbee, the chairman the White House Council of Economic Advisers, appearing Sunday on “Meet the Press” on NBC, said Mr. Obama was still convinced there was no economic benefit to continuing lower tax rates for the highest earners.
“That’s a bitter pill to have to deal with,” Mr. Goolsbee said. “But it’s a compromise, and by giving that one piece we were able to get a series of things that I think make a big difference to the middle class and working families.”
The full scope of those goodies is fully discernible only by poring over the bill and its head-spinning array of provisions
The single most expensive component of the package — other than the continuation of all of the marginal rates — is a two-year adjustment of the alternative minimum tax, to prevent it from hitting millions more households. This would insulate couples with income up to $72,450 in 2010 and $74,450 in 2011 at a cost of $137 billion, according to a detailed cost analysis by the Congressional Joint Committee on Taxation.
Middle- and upper-middle-income Americans will also benefit most from the one-year payroll tax cut, which will reduce the Social Security tax on income up to $106,800 to 4.2 percent from 6.2 percent. For couples with two incomes, each above the maximum, the tax savings will be $4,272. That provision will cost $112 billion.
The extension of jobless benefits, by contrast, will cost just under $57 billion, according to the joint tax committee.
And other provisions that benefit the middle class have gotten virtually no attention, including a temporary repeal of a limit on itemized deductions and repeal of the phaseout for personal exemptions. Together, those tax breaks will cost nearly $21 billion.
Mr. Goolsbee said the White House was betting that after a two-year extension of tax policies of President George W. Bush, it would be far harder for Republicans to defend the tax cuts for the wealthy in 2012, when the economy is expected to be stronger, thereby weakening their argument that allowing tax rates to rise for the rich would hamper the recovery.
“In 2012, I believe they will have to stand up and defend, on their own merits, that they think these high-income tax cuts work,” he said. “And they will not be able to do that because they don’t.”
While the full political ramifications will not be known for months or longer, it was increasingly clear on Sunday that the tax deal would move forward.
Reluctant House Democrats predicted that the package would be approved before Congress adjourns this year, as days of rage and frustration began giving way to resignation and acceptance.
Representative Chris Van Hollen of Maryland, who represented House Democrats in the formal negotiations during the tax debate, said his caucus would still push to change the tax plan, particularly a provision granting a generous tax exclusion to wealthy estates. But he conceded that Democrats were not prepared to stop the entire package.
“We’re not going to hold this thing up at the end of the day,” Mr. Van Hollen said in an interview on “Fox News Sunday.” Still, he said House Democrats were intent on testing Republicans’ willingness to insist on keeping the estate tax provision, with its exemption of $5 million per person and maximum rate of 35 percent, for the next two years.
But Republicans have said they would not accept any major adjustment to the deal negotiated with the White House. Appearing on the same show, Representative Paul Ryan, Republican of Wisconsin, said he viewed Mr. Van Hollen’s remarks as a flag of surrender.
Mr. Van Hollen, in a telephone interview later on Sunday, said he had not intended to signal any change in strategy or position. “In its current form it is not acceptable to the Democratic caucus,” he said.
And he would not predict what would happen if House Democrats changed the provision. “That’s a question for another day,” he said
But he added, “We do want to get this resolved by the end of the year.”
The Senate was set to hold a procedural vote on Monday and was likely to give final approval on Tuesday. And Mr. Van Hollen’s remarks suggested that the entire package could be approved by the end of this week.
In the Senate, Democrats were quicker to accept that Mr. Obama’s tradeoff could help reverse the party’s political misfortune, in which important swing voters, especially independents and women, turned toward the Republicans.
Some Senate Democrats, particularly those who, like Mr. Obama, are up for re-election in 2012, have called for a laserlike focus on the middle class in the months ahead. And while some will undoubtedly vote against the tax plan, others like Senator Jim Webb of Virginia, have quickly become vociferous supporters. Mr. Webb, who is up for re-election in 2012, has called the package “the ultimate stimulus plan.”
By DAVID M. HERSZENHORN NYT