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Obama-GOP deal raises taxes on poorest earners



Quarter of tax savings will go to richest one percent

The plan to extend Bush-era tax cuts that President Barack Obama struck with the Senate Republican leadership will result in lower taxes for wealthy and middle-class Americans but will mean a tax hike for the very poorest earners.

According to an analysis in the New York Times, the Obama-GOP deal will mean that individuals earning less than $20,000 and families earning less than $40,000 will see a small tax hike.


“It will come to a few dollars a week,” Roberton Williams, an analyst at the Tax Policy Center told the Times. “But it is an increase.”

As part of the deal, Obama agreed to drop the Making Work Pay credit that was created as part of the stimulus package, and replace it with a lower payroll tax. That lost credit — of $400 or $800 — is greater than the amount low-income earners will save from the lower payroll tax, meaning, in total, they will pay more.

Of the estimated $900 billion in new and continued tax breaks in the deal, about one-quarter — $225 billion — is expected to go to the top one percent of earners.

The Times reports:

[T]he tax benefits will flow most heavily to the highest earners, just as the original cuts did when they were passed in 2001 and 2003. At least a quarter of the tax savings will go to the wealthiest 1 percent of the population.

The wealthiest Americans will also reap tax savings from the proposal’s plan to keep the cap on dividend and capital gains taxes at 15 percent, well below the highest rates on ordinary income.

And negotiators have agreed that the estimated $900 billion cost of the cuts will simply be added to the deficit — not covered by reductions in spending or increases in other taxes. That is good news for hedge fund managers and private equity investors, who appear to have withstood an effort to get them to pay more by eliminating a quirk in the tax code that allows most of their income to be taxed at just 15 percent.


The analysis comes as President Obama worked Wednesday to sell Democratic leaders and his progressive base on a tax deal many of them say was an unnecessary giveaway to the wealthy and — from a fiscal perspective — bad policy.

“I think the more they look at it, the more of them are going to say this makes sense,” the president said of the deal. “You’ve just had economists over the last 24, 48 hours examine this and say this is going to boost the economy; it is going to grow the economy; it is going to increase the likelihood that we can drive down the unemployment rate.”

Senate Democratic Leader Harry Reid said Wednesday that the Senate could begin to move on the deal as early as this week, something Reuters reported as “a sign Democrats may be conceding on the deal.”


However, opposition to the bill is gathering steam among some senators on both sides of the aisle. Sen. Bernie Sanders, an avowed democratic socialist, and Sen. Jim DeMint, considered one of the most conservative members of the chamber, have both declared they will filibuster the deal.

It’s unclear if there are 60 votes in the Senate to overcome a filibuster.


Report typos and corrections to: [email protected].
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