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Fiscal Scheme Deal Done: 77% of Households Will Pay More Taxes, Corporations Get Subsidies

Photo: Pete Souza

We have been subjected to a White House negotiating process that violates every standard of rationality and transparency. The public never once saw an integrated budget proposal that showed the quantitative and qualitative implications of various policy options. The public has not been told that yesterday’s agreement threatens the financing of crucial programs for education, job training, infrastructure, environment, energy, science and technology, health care, nutrition, and the poor for years to come. – Jeffrey Sachs

WHILE SPEAKER Boehner couldn’t get the majority of his caucus to vote for the Senate’s Fiscal Cliff bill, breaking the Hastert rule, the House managed to pass it 257 to 167.

The deal passed by the Senate and the House will impose fewer limits on deductions than the White House plan. It will also tax income from dividends at a flat rate of 20 percent, rather than the same marginal rate as earned income. And there is another important point, often misunderstood: Affluent households will pay the new 39.6 percent rate only on income above $450,000. They and everyone else will still will pay lower rates on income below that threshold. [New York Times]

Matt Stoller lays out some interesting corporate give-aways that no one has mentioned or paid any attention to whatsoever. They include corporate subsidies to Goldman Sachs, Disney, NASCAR, which seems to include a “9B Off-shore financing loophole for banks.” From Stoller:

5) Subsidies for Goldman Sachs Headquarters — Sec. 328 extends “tax exempt financing for York Liberty Zone,” which was a program to provide post-9/11 recovery funds. Rather than going to small businesses affected, however, this was, according to Bloomberg, “little more than a subsidy for fancy Manhattan apartments and office towers for Goldman Sachs and Bank of America Corp.” Michael Bloomberg himself actually thought the program was excessive, so that’s saying something. According to David Cay Johnston’s The Fine Print, Goldman got $1.6 billion in tax free financing for its new massive headquarters through Liberty Bonds.

ABC News has more:

  • $430 million for Hollywood through “special expensing rules” to encourage TV and film production in the United States. Producers can expense up to $15 million of costs for their projects.
  • $331 million for railroads by allowing short-line and regional operators to claim a tax credit up to 50 percent of the cost to maintain tracks that they own or lease.
  • $222 million for Puerto Rico and the Virgin Islands through returned excise taxes collected by the federal government on rum produced in the islands and imported to the mainland.
  • $70 million for NASCAR by extending a “7-year cost recovery period for certain motorsports racing track facilities.”
  • $59 million for algae growers through tax credits to encourage production of “cellulosic biofuel” at up to $1.01 per gallon.
  • $4 million for electric motorcycle makers by expanding an existing green-energy tax credit for buyers of plug-in vehicles to include electric motorbikes.

From the New York Times, “Bigger Tax Bite for Most Households”:

But lawmakers’ decision not to reverse a scheduled increase in the payroll tax that finances Social Security, while widely expected, still means that about 77 percent of households will pay a larger share of income to the federal government this year, according to the center’s analysis.

The tax this year will increase by two percentage points, to 6.2 percent from 4.2 percent, on all earned income up to $113,700.

Indeed, for most lower- and middle-income households, the payroll tax increase will most likely will equal or exceed the value of the income tax savings. A household earning $50,000 in 2013, roughly the national median, will avoid paying about $1,000 more in income taxes – but pay about $1,000 more in payroll taxes.

As Bloomberg reports, the average rise in taxes on people paying between $50,000 – $200,000 is being estimated as around $1,635. You can argue that the payroll tax cut needed to be nixed eventually, which is absolutely true, but at the same time you can’t pretend that the middle and working class aren’t getting a tax hike, even if it won’t be even larger, because the Bush tax cuts for this group have been extended. So, in essence the latest fiscal scheme from Obama, Democrats and Republicans simply keeps an even larger tax cuts from hitting, but doesn’t stop middle class from taxes going up.

This column has been updated.

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6 Responses to Fiscal Scheme Deal Done: 77% of Households Will Pay More Taxes, Corporations Get Subsidies

  1. jinbaltimore January 2, 2013 at 2:57 am #

    And the New York Times is officially on board with going after Social Security by calling the cessation of the payroll tax holiday a tax increase. Dang “liberal” media!

    • DaGoat January 2, 2013 at 9:04 am #

      Yeah neither party had any interest in extending the payroll tax holiday and as far as I know was never a part of the negotiations. Funny thing for the NYT to focus on.

  2. Romberry January 2, 2013 at 3:01 am #

    I’m not about to get bent out of shape about the Social Security payroll tax returning to its pre “temporary cut” level. The Social Security payroll tax should never have been meddled with in the first place. Meddling with the payroll tax only served to undermine the basic political calculus done by FDR to keep the program safe from politicians. See FDR’s famous quote from Luther Gulick’s Memorandum on Conference with FDR Concerning Social Security Taxation, Summer, 1941:

    In the course of this discussion I raised the question of the ultimate abandonment the pay roll taxes in connection with old age security and unemployment relief in the event of another period of depression. I suggested that it had been a mistake to levy these taxes in the 1930’s when the social security program was orgiginally adopted.

    FDR said, “I guess you’re right on the economics. They are politics all the way through. We put those pay roll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program. Those taxes aren’t a matter of economics, they’re straight politics.

    I really hate to see the expiration of a “temporary” tax cut being called a tax increase. This is a cut that never should have happened in the first place. I’m glad it’s being let go. If Obama wants this sort of stimulus, he needs to bring back the “Making Work Pay” program that gave a refundable tax credit of up to 400 dollars for single income and 800 dollars for two income households. It’s a tax cut…and Republicans love tax cuts. And a good pol who isn’t seeking to undermine the basic political calculus of the Social Security payroll tax ought to be able to make the case to the public and bring the pressure needed to get the MWP program (or a program like it) pushed through.

  3. ladywalker68 January 2, 2013 at 9:24 am #

    Another funny thing is that the corporate welfare was not publicized much. Funny thing…

  4. fangio January 2, 2013 at 10:09 am #

    Just a mind boggling embarrassment; Obama should be ashamed, if he were capable of it.

  5. Lake Lady January 2, 2013 at 10:54 am #

    David Brooks who I rarely agree with said a funny thing on Meet the Press. He said that Obama governs like he is from a morally superior planet.

    I get the impression that he is always lecturing us from this position on high, when actually he never appears to really trust any of us rubes to tell the whole truth. Like that we are all in this situation together. I am probably not expressing this well but he is always so singular. He uses so many more “I” s than “we” s.

    On another note~ The chances of the people getting any kind of accurate information is up to their own research skills. If the disinformation and intellectual dishonesty on Morning Joe, this morning is an example.

.... a writer is someone who takes the universal whore of language
and turns her into a virgin again.  ~ erica jong