In Which I Weigh In On The Obama Compromise Tax Plan

Ken AshfordEconomy & Jobs & DeficitLeave a Comment

No, of course I don't like it.  What was Obama thinking????

Here, in a nutshell, is the deal that Obama worked out with the Republicans:  In exchange for a two-year extension of all the tax cuts — including those for households making more than $250,000 per year — the deal includes a 13 month extension of unemployment benefits, a two percent cut in the employee side of the payroll tax for one year, and a retention of some expanded tax credits included in the 2009 Recovery Act.  To get Republicans on board, Obama also agreed to a two-year cut in the estate tax (which he characterized in a statement as a “more generous treatment of the estate tax than I think is wise or warranted”).  As an aside, these Republicans want an estate tax which only benefits millionaires are the same Republicans who think spending $7.6 billion to help the 9/11 rescuers (firemen, police, etc) who have contracted diseases, is wasteful and "job-killing".

In other words, to get some unemployment relief to the (mostly) middle class, Obama agreed to tax cuts for a very small number of wealthy people.

For comparison’s sake, here is a chart detailing both the number of people (in millions) who benefit from each side’s priorities, as well as the total cost (in billions). Obama’s components of the tax deal (extended unemployment benefits, the payroll tax cut, and the extended credits) will cost $214 billion to aid 156 million people. The Republicans priorities (extending the Bush tax cuts for the rich and cutting the estate tax), meanwhile, will cost $133 billion, but only benefit roughly 4.8 million people.  Or, in graph form….

Excluded from this analysis is extension of the broad-based Bush tax cuts, on which everyone agreed. 

And you can see what's happened — Obama's priorities will cost a lot more, but it will help more.  Whereas the Republican priorities will cost half as much, but help practically nobody.

On a per-person level, the GOP's tax cuts are much larger. An individual billionaire is getting a far better deal than an individual unemployed American. And that's galling. 

Now, let's look at the snowman graph, which I've shown on here before.  At the left is Obama's original plan, the GOP's original plan, and the compromise plan of this week.  The graph shows the average tax cut for a person living at each income level.  Click to embiggen.


Bottom line?  Under the compromise plan, the wealthiest of the wealthy do better than the original GOP plan.

The problem with the original GOP plan and the Obama tax plan compromise of this week is that the tax cuts benefit the wealthy on a disproportionate level — the wealthy being, typically, the ones least effected by the recession.

Does that make sense to anyone other than greedy Republicans?

UPDATE:  House Dems reject Obama's compromise plan.