The natter coming out of the White House these days is that the tax package just negotiated with the Republicans will act as a mini-stimulus that will give the economy an added boost in 2011 as the last of he $700 billion stimulus measure passed in 2009 expires. If the White House crowd actually believes this, along with its other problems, it has a counting problem.
Virtually none of this tax stimulus is actually new, The Bush-era tax cuts, for both middle class and upper income tax payers, have been in place for almost a decade. The business and some of the other tax breaks part of this new package have been in place since the 2009 stimulus measure was enacted. There is no new stimulus here. No added stimulus. None.
There’s only one element of the just announced tax package that’s new, in fact — a two percent cut in the Payroll Tax. This two percent reduction is supposed to give working Americans $120 billion more to spend in 2011, not a huge stimulus in an economy our size, but a least something, Right? No, not right.
First, not right because not all of the 174 million Americans who pay the Payroll Tax will see an increase in their take home pay. About 10 percent of these people will actually see an increase in their taxes.
This is because government workers have separate pension systems and don’t pay the Payroll Tax, and many of these people will lose the Making Work Pay tax benefit that was excluded from the newly negotiated package. Net effect? More taxes for these people.
Another loser here are the millions of American who make less than $20,000 a year ($40,000 per family). They will lose more in Making Work Pay savings than they get in a lower Payroll Tax.
Alright, you say. But more than 150 million American workers will still get that 2 percent Payroll Tax cut, and this will add more than $100 billion into the spending pool. Right? No, not right.
The reason is inflation. It’s currently very low, just 1.7 percent in the fiscal year ended this September. It will almost certainly be much higher in 2011 given the increases in gas and food prices we’re seeing today. Even if it is only last fiscal year’s 1.7 percent, however, inflation almost completely wipes out in real terms any spending boost workers will get from a Payroll Tax decrease of 2 percent.
As a added stimulus to a flagging economy the new tax package put together by the Obama White House and Republicans in Congress is a total dud. But that’s not to say it will have no real overall effects on our economy and the fast diverging lifestyles of our people.
By giving 25 percent of the total tax breaks to the top one percent of taxpayers, it mightily adds to income inequality in this country. It grossly expands our national debt. It makes us appear like foolish children before the world, kids who just can’t keep their hands out of the cookie jar even after being diagnosed with debt diabetes. And of course if make both Democrats and Republicans look like toadies of the very rich.
Third party in 2012 anyone?
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