Half a Loaf Is Better Than None

Half a Loaf Is Better Than None

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Before progressive Democrats pummel President Obama too much for “caving” on the $250,000 threshold for raising taxes, we all should look carefully at the bill that passed the Senate in the last minutes of 2012. The bill, if it can make it through the House with its tea-poisoned GOP caucus, actually raises taxes on all Americans, but it does hit the wealthy the hardest. Here’s how it works.

Individuals with incomes of $400,000 or more, and couples with incomes of $450,000 or more, will see their top tax rate go from 35% to 39.6%. (Remember that no one’s income is taxed at the highest rate for every dollar. The 39.6% simply affects earnings OVER those amounts.)  Additionally, personal exemptions and itemized deductions will begin to phase out for people making $200,000 or couples making $250,000 or more, giving the president an “out” for his $200,000/$250,000 threshold.

Every working person will pay more under this compromise because the temporary recession stimulus of a 2% cut in FICA taxes (Social Security and Medicare) will be allowed to expire. (These are the taxes that Mitt Romney conveniently “forgot” about when he wrongly said 47% of Americans pay no income taxes. FICA taxes are paid on a person’s income and are regressive because everyone pays the same amount, about 7.5% of gross income, regardless of income.)

The estate tax will increase from 35% to 40%, but not on the first $5 million of estate value. That’s hardly surprising, considering that most members of the Senate are multi-millionaires. Most people who get income from capital gains and/or dividends won’t notice the rise in their tax from 15% to 20%, because the higher tax rate doesn’t kick in until annual income goes above that $400,000/$450,000 threshold. (Sorry. Mitt, but you will pay a bit more in taxes unless your accountants can find more ways to hide your income.) Not only that, but the 3.8%  percent surcharge on investment income that was part of the Affordable Care Act means the top rate on investment income would increase to 23.8% for the richest Americans.

I’ve already noticed inaccuracy in reporting on this bill, even from the venerable New York Times. In the Times, Jonathan Weisman says, “The Senate,.. in a pre-dawn vote two hours after the deadline passed… overwhelmingly approved legislation on Tuesday that would allow tax rates to rise only on affluent Americans.” Wrong!  FICA taxes are collected on gross incomes. The tax rate for FICA is going up. Believe me, if I only made $200 a week, the extra $218 I’ll be paying in taxes this year is definitely an increase in my “tax rate.”  

Just as important to President Obama were some other things fixed by this bill, plus the fact that he recognizes that voters want to see politicians compromise. The bill extends federal farm policies through September, avoiding a possible doubling of milk prices. While the bill took away the pay raise for this “do-nothing” Congress, sadly it also ended overdue pay raises for all Federal workers. Extremely important to President Obama was the inclusion of an extension of unemployment insurance for a full year. Without that provision, over 2 million Americans would have lost unemployment benefits.

As I expected, Congress refused to give up its leverage by foregoing another debt ceiling fight at the start of the next Congress. So, the inability to conduct business because of political obstruction will likely go on and on, as will what to do about the automatic, across-the-board budget cuts that this bill simply postpones for another day.

Sen. Tom Harkin, Paul Krugman, and other liberals are extremely disappointed that President Obama didn’t hold out for the $250,000 threshold for income tax increases, believing that Republicans would have been forced by public pressure ultimately to agree to the lower amount. That may or may not be true. However, I personally believe that the president read the politics of this thing correctly. If no compromise had been reached in either branch of Congress, the corporate media would then have blamed both sides equally for the inability to compromise.

In just about every opinion poll taken, Americans want to see compromise in Washington. They want to see problems addressed in a bipartisan way. So do I. I’m sick and tired of posturing politicians playing into the hands of media that want everything to be turned into a conflict, where the media will be able to blame both sides for the gridlock that is caused mainly by a dysfunctional House of Representatives that has been poisoned by Tea Party extremists.

We also have to remember that Barack Obama is not a confrontational person. Let’s be honest with ourselves. No African-American could have attained the highest office of the land if he/she had been an in-your-face, take-no-prisoners, Newt Gingrich clone of a politician.

I would rather have a compromise that doesn’t give me all that I hoped for, rather than make it seem to the business community and the rest of the world that the government can’t get anything done, even when faced with events that could lead to another recession. So, this compromise is O.K. with me. We’ll have to wait and see if the House feels the same way…

  • http://www.bluevirginia.us lowkell

    THE WHITE HOUSE

    Office of the Press Secretary

    FOR IMMEDIATE RELEASE

    January 1, 2013

    Statement from the President

    Leaders from both parties in the Senate came together to reach an agreement that passed with overwhelming bipartisan support today that protects 98 percent of Americans and 97 percent of small business owners from a middle class tax hike. While neither Democrats nor Republicans got everything they wanted, this agreement is the right thing to do for our country and the House should pass it without delay.

    This agreement will also grow the economy and shrink our deficits in a balanced way – by investing in our middle class, and by asking the wealthy to pay a little more.

    What’s more, today’s agreement builds on previous efforts to reduce our deficits. Last year, I worked with Democrats and Republicans to cut spending by more than $1 trillion. Tonight’s agreement does even more by asking millionaires and billionaires to begin to pay their fair share for the first time in twenty years. As promised, that increase will be immediate, and it will be permanent.

    There’s more work to do to reduce our deficits, and I’m willing to do it. But tonight’s agreement ensures that, going forward, we will continue to reduce the deficit through a combination of new spending cuts and new revenues from the wealthiest Americans. And as we address our ongoing fiscal challenges, I will continue to fight every day on behalf of the middle class and all those fighting to get into the middle class to forge an economy that grows from the middle out, not from the top down.

  • Jim B

    I see some sites are saying Obama caved. It seems to me that folks making less than 1 mil are the people that spend making the economy go. While it may be good for the deficit to tax above 250k, can we take the chance and stall the economy?

    As with fica, do we want to keep delaying what we should be paying?

  • RossPatterson

    Wrong!  FICA taxes are collected on gross incomes. The tax rate for FICA is going up. Believe me, if I only made $200 a week, the extra $218 I’ll be paying in taxes this year is definitely an increase in my “tax rate.

    The temporary FICA reduction was 2 points.  I have family members at the top end of the SSI cap (> $110,100), and much lower down ($22,500).  At the top end, they got to keep $183 a month, which isn’t much in comparison to their lifestyle, but it isn’t chump change either.  At the lower end, they got to keep $37 a month – not even $10 a week.  At minimum wage, it’s only $24 a month – not even one hour’s pay a week.

    I’m here to tell you, my family members down in the low end thought the FICA reduction was a mean joke.

    The FICA reduction wasn’t much of a stimulus, and it is right that it should expire.

  • Elaine in Roanoke

    Virginia’s own Eric Can’tor now says he “won’t support the bill.” The GOP freak show continues….