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Posted by on Jan 3, 2013 in Economy, Politics | 15 comments

Fiscal Scheme Deal Raises Taxes on 77% of Americans

President Barack Obama talks on the phone in the Oval Office, Dec. 28, 2012. (Official White House Photo by Chuck Kennedy)

WASHINGTON – It’s a fool’s errand trusting President Obama, Democrats or Republicans, which is why I haven’t for a very long time. It’s 2013, the year of austerity, which didn’t work in Europe and won’t work here either, but our politicians are too ignorant to learn the lessons.

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 during a precarious time on the economic front it’s ridiculous. You also 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 at the wrong moment.

Happy New Year.

Taylor Marsh, is a veteran political analyst, a former Huffington Post contributor, Broadway babe and talk radio dabbler, and is the author of The Hillary Effect, available at Barnes and Noble and on Amazon. Her new-media magazine covers national politics, women, foreign policy, and culture.

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Copyright 2013 The Moderate Voice
  • The_Ohioan

    What? What? I was told that 47% of possible workers were loafers. You mean that now those workers plus another 30% of them are working and paying payroll taxes? What happened? Did the economy improve and no one told us?

    The fact that the Democrats and President Obama kept income taxes from raising and at the same time returned necessary funds to the SS fund making a zero sum outcome sounds like good governance, considering the alternatives and the Republicans they had to work with.

    Sour grapes leftover from 2008 are turning not into wine, but into vinegar.

  • ShannonLeee

    I was thinking the same thing Ohio.

  • It’s always interesting when people prefer hyper partisan nonsense over numbers and facts. People who do so are part of the problem in our politics.

    Happy New Year to everyone at TMV.

  • Momzworld

    I, too, have to agree with Ohio. I didn’t agree with the President when he reduced the payroll tax 2% to begin with. On a annual salary of 50,000, it amounts to 19.00 a week. For a person at that salary level, it isn’t nothing, but it’s not all that stands between such a person and total abject poverty either. Most of the wage earners on the payroll I managed earned less than this amount and many didn’t even blink when the payroll tax was reduced. The only reason there will be comment now from some is because of all the attention it’s getting in the Media. Taxes pay for a great many things from which we benefit as a nation, and all the negative Media hype as well as all the screaming on the part of conservatives is getting pretty tiresome. IMO

  • sheknows

    I agree with Momzworld. Complain, complain…. It could have been worse actually with both the payroll tax and increased income tax.
    People are desperate to point out how the current administration is screwing us, but that simply is not the case. Look, we all need to pay taxes, that is a fact of american life. While I don’t agree with all the tax breaks some are given,it doesn’t mean I’m about to take up arms. We work through it gradually, or we just accept the fact that there is no perfect government in the world and be grateful for the one we have.

  • slamfu

    That payroll tax break had to end sometime. If it does so in the framework of a larger budget deal, so be it. It will hardly be felt, and had to happen. Its the end of a perk, not the imposition of a penalty.

  • Always appreciate your comments.

    Best to you all in the New Year.

  • adelinesdad

    I believe it was the right thing for the 2% payroll tax cut to expire. We have to fund social security, in good times and bad. That cut shouldn’t have been made in the first place.

    However, it’s also true that the bill should be accurately reported, and it was not until recently. Commentators who attempted to point out that taxes actually were going up for most people were accused of being right-wing hacks (in some cases true, in others not). Meanwhile most Americans were unaware that their paycheck would actually be smaller, until suddenly the broader news media decided to “break” to story. It’s an example of how the media gets caught up in the polical game where “everybody knew it was going to go up” so we’re just going to write it off as if it didn’t happen. No, the single mom who is trying to live her life and isn’t keeping track of implementation and expiration dates for various policies didn’t know and it’s the media’s job to tell her.

  • DORIAN DE WIND, Military Affairs Columnist

    What? What? I was told that 47% of possible workers were loafers. You mean that now those workers plus another 30% of them are working and paying payroll taxes? What happened? Did the economy improve and no one told us?

    Good one, T.O 🙂

  • KP

    Taylor, this is one of your best articles. Bravo. It is refreshing to here opinions looking beyond partisan nonsense. More, Please!

  • merkin

    Once again, the payroll tax is going up 4% based on your salary up to 113,700 dollars a year when you include the employers contribution. This is quite a bit of money overall in the economy and will contribute to the already high deflation. It is the wrong time to try to balance the budget. It will depress the economy possibly even to the point of another recession. There is a very good chance that it won’t even reduce the budget deficit because it will reduce tax revenues as the economy declines.

    Reducing the payroll tax is the better way to stimulate the economy compared to reducing the income tax. And with nearly 8% unemployment and debt deflation we still need to stimulate the economy.

  • adelinesdad


    My understanding is that the employer rate was already at 6.2% and the temporary cut only applied to the employee contribution. At least that’s what I gathered from this:

  • merkin

    Slamfu said

    That payroll tax break had to end sometime. If it does so in the framework of a larger budget deal, so be it. It will hardly be felt, and had to happen. Its the end of a perk, not the imposition of a penalty.
    The Moderate Voice (

    I remind you that the Bush tax cuts where enacted as temporary measures to stimulate the economy. Why do you draw a distinction between them and the payroll tax cuts?

  • petew

    I read about the re-institution of payroll tax cuts, and was immediately impressed with the idea that this sort of story was just another attempt to dis the Obama administration for political hypocrisy. But since when has making compromises been perceived a weakness if it will save our economy from even larger income taxes, and a likely 2nd recession—and just when things are improving?

    It seems to me that the extreme left is crying about not getting all its wants, at about the same time that Grover’s Republican stooges are crying about actually committing the supposed heresy of raising taxes—any taxes!

    In a system based on checks and balances the best route to good legislation is by actually giving a bit on your side’s demands, and getting the same consideration from your political opponents. I know that Republicans have not shown a very good track record in this regard (to say the least) but it is important that they saw the need for at least some give and take.

    Members of the Tea Party, seem to think that they represent the next inspired change in politics, or another step in the evolution of human freedom. What they really are, is a bunch of spoiled brats, ignorant of the way Washington and the economy in general, actually function. I’ve no doubt that even they, partly in response to public opinion and, partly in response to the anguished cries from other saner and more mainstream Republicans, would have eventually given in to reality—but the question is, after how long?

    The TPers would likely have taken us over the cliff for at least a few weeks while audaciously grandstanding to assert their (self-perceived) righteousness when refusing to allow any new tax revenues. During this time, our credit rating would suffer severely and many more members of the middle class would have paid even higher taxes, and, more importantly, several million would have been denied crucial unemployment insurance at a time that finally promises financial growth—job opportunities included. Norquist’s puppets are so much under his thumb and the tea party is so much convinced of its own superior economic genius, that I have no doubt they would have made no concessions until after great damage was done.

    I’m not saying that the press shouldn’t have provided the public with details about our overall taxation that included the end of payroll tax deductions, but, I don’t think it should be turned into a burning issue in order to express frustration or dissapointment with Democrats. If anything it was a good move that provides us with future SS revenue, and, it also must satisfy many Republicans who (rightly or wrongly)thought, last year, that it was a bad idea to extend such tax cuts for the long run.

    As far as special interest earmarks are concerned, some of the ones on the list may eventually not only provide breaks for special interest groups but, may also result in greater revenue for the Federal government while kick-starting vital industries. And, how do we know that algae researchers won’t discover bio-fuels that will provide us with green answers for much needed energy?

  • dduck

    I may be wrong, but ironically, the crazy Reps can ride to the rescue of the W2 payers by introducing a “cut” in taxes (they love that) by delaying or gradually reintroducing the PT. The Dems would have to go along.
    Is it a good idea? Maybe, but we can’t permanently not fund the lost PT taxes.

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