Congress: Smaller paychecks for workers


New Year’s Day has come and gone; the impending “fiscal cliff” disaster that so occupied the fears of politicos and businessmen throughout the country has, at the 11th hour, been averted by heroic deal-making by Republican and Democratic legislators. They made some  “tough decisions” in the face of the (manufactured) crisis that was facing the country. And they passed a bill that managed to both not solve any of the debt problems that led to the mess in the first place (in fact, the deal will increase the budget deficit) and to set the stage for further assaults on social programs and working people in general in the very near future.

The deal, known as the American Taxpayer Relief Act of 2012, is obviously focused mostly on the tax revenue side of the budget equation. It has a number of provisions, of which the most important are:

Permanency of the Bush Tax Cuts: The income tax cuts signed into law by President Bush in 2001 were one of the three major factors (the other two being the recession and the expansion of health-care costs) leading to the explosion of U.S. public debt that caused this entire mess in the first place. The bill made these tax cuts permanent for everyone except those earning over $400,000 a year, or only about 1% of taxpayers.

The Congressional Budget Office (CBO) projects that, as a result, the budget deficit will increase by $4 trillion over the next 10 years, relative to the case where all of the Bush tax cuts had expired this year, as originally scheduled. That shortfall means—you guessed it—another fight down the line over which social programs should be cut (and those cuts will be deep). The estate tax was also raised to its Clinton-era levels.

The Expiration of the Payroll Tax Cut: A payroll-tax holiday was enacted in 2010 as part of a fiscal stimulus program to assist recovery from the recession, dropping the rate to 4.2% from 6.2%. That means that anybody earning a paycheck will, despite the rhetoric about “not raising taxes on middle-class families,” see an increase of an average of a thousand dollars on their tax bill this year. And, since the payroll tax is a flat tax capped at $106,800, the increase disproportionately affects those workers earning the least; someone earning $500,000,000 a year pays the same amount of payroll tax, $2,274, as someone earning $150,000. And, of course, a two percent tax increase will hurt a family living on $30,000 a year a lot more than one earning $150,000.

Taken along with the Bush tax cuts being made permanent, we can begin to see an outline of the beneficiaries of tax policy in the United States. What we have is a major tax increase on all working people, while those earning higher incomes see no increase in their income tax, and a slight increase in payroll tax (which does not rise proportionally to income because of the cap).

There is, of course, a minor bone thrown in, in the form of a marginal tax increase on small numbers of the very rich, but this does nothing to impact the debt or improve the lives of working people. And although the payroll tax funds Social Security, there is no reason that a society as wealthy and productive as ours needs to squeeze the lives of its workers to fund their barebones survival in old age; in addition, with social programs being on the table for debt negotiation talks later this year, look for enterprising politicians to talk about raiding the Social Security fund to make up for the general deficit.

Annual Minimum Tax (AMT) and Tax Deduction Limits: The bill chained the AMT to inflation, effectively limiting it only to high wage earners, and created limits on tax deductions for individuals earning more than $250,000 per year. Although these policies are designed primarily to affect the rich, the overall impact is likely to be minor.

Tax Extenders: “Tax extenders” are a bundle of various tax credits and subsidies that go entirely to corporate recipients, ranging from NASCAR to Goldman Sachs, ostensibly for research and development. But they include protection for a type of off-shore financing, tax credits for building “entertainment complexes,” and other things that should be financed by the corporations themselves, like basic worker safety and maintenance, but are shunted off to the taxpayer. So, while the bill passes what amounts to a massive tax hike on the working class, it works hard to protect the Democrats’ and the Republicans’ primary constituency, the corporations, from, well, … actually having to produce anything.

Extension of Unemployment Benefits, Earned Income Tax Credit, and the Child Tax Credit: So far, so good.

Emergency unemployment benefits were set to expire on Dec. 31, but they were extended for another year. The Earned Income Tax Credit (EITC) and Child Tax Credit, extremely beneficial to working families, were protected from this round, although the deficit madness is just getting into gear.

There are a few other provisions in the bill as well, like the prevention of pay cuts to Medicare doctors and the temporary resolution to the so-called “milk cliff,” and a pay freeze for members of Congress. The most critical parts of the bill are the massive tax hike for working people and the fact that the fiscal cliff has not been averted. That is correct; the permanent changes to the Bush tax cuts, the permanent expiration of the Payroll Tax Holiday, the year-long extension of sweetheart corporate subsidies, were all done to push back the deadline for sequestration until March 1, by which time if a suitable solution to the debt “crisis” hasn’t been found, the cuts to defense and non-defense discretionary spending will proceed as normal.

The bill did nothing to provide for a Fiscal Year 2013 budget (FY 2013 started in October 2012, so the government has been operating under a “continuing resolution,” a stop-gap that continues the previous year’s funding levels on an emergency basis). And finally, before sequestration is set to occur in March, we will hit the debt ceiling again near the end of February.

Upon the bill’s passing, the usual suspects came out of the woodwork to defend it as the best compromise an embattled president could muster:

“[A]nd on the principle of the thing, you could say that Democrats held their ground on the essentials—no cuts in benefits—while Republicans have just voted for a tax increase for the first time in decades,” says Paul Krugman of the deal, while Ezra Klein is busy, as usual, spinning the deal as another victory on President Obama’s inevitable road to progressive utopia. To be sure, there are some things that appear good in the bill, and some things that appear to be a reasonable compromise.

The real indicator, however, is the way that the fiscal cliff deal sets the stage for the upcoming fight on the debt ceiling. Revenues are a done deal; the changes in revenue structure are permanent, at least through the end of the year, and we will not hear much more about raising taxes (since we just did!). Despite being one of the major drivers of debt expansion, the Democrats will defend PPACA to the death, and the Republicans are certainly not going to fight for the one solution that will solve the problem of spiraling health costs,—i.e., nationalized health care—so we can expect that health care (aside from Medicare and Medicaid) will not be part of the discussion.

What’s left? We have the tax increases; the only thing left to talk about is what to cut and how much—austerity, American-style. You can bet that Congress will be gunning for Social Security, Medicaid, education, and the whole sweep of social programs that help ordinary Americans; both sides have indicated a willingness to go after Social Security and Medicare, programs that were taboo to even talk about in the context of cuts (Obama’s 2012 budget proposal already attempted to include a higher age eligibility for Medicare and reduced benefits).

So watch for February. It looks like, in order to solve the crisis of capitalist production, both the Republicans and Democrats are looking to throw working Americans to the wolves.

Photo: Tony Savino / Socialist Action

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