Obama and the GOP: United Against the Working Poor
Who says bipartisanship is dead?
On Capitol Hill, the Democrats and Republicans may no longer play cards and drink together, but that does not seem to stop them from working together to shift tax burdens down the income ladder even when it violates their promises on the campaign trail.
Grover Norquist calls bipartisanship the political equivalent of date rape. But there is one group that President Obama, many congressional Democrats, and all congressional Republicans ganged up on in December -- the working poor.
The tax compromise passed in December has been hailed everywhere as a payroll tax cut combined with an extension of the Bush tax cuts, despite the fact that it raised taxes on a third of Americans. The killing of Obama's Making Work Pay tax credit, which the White House called the biggest middle-income tax cut ever, and the replacement of it with the Republicans' payroll tax cut raised taxes on single workers whose wages come to $20,000 or less and married couples with less than $40,000 in wages.
That's 51 million taxpayers, the Tax Policy Center estimated. (See Table T10-277.)
Among the poorest fifth of tax units, whose annual cash income is less than $17,878, two-thirds got hit with a tax increase. On average, their taxes went up $134, which is 1.3 percent of this group's total cash income.
Consider a single worker who makes $6,000. That was the average wage of the bottom third of workers in 2009, the Medicare tax database shows. Killing the Making Work Pay credit in favor of the payroll tax cut amounted to a tax increase of $252, or 4 percent of total income.
Looked at another way, some workers will labor for 23 days this year and next just to pay increased taxes.
The pattern of the Republican-Obama tax plan is a clear stepladder in which the more you make, the more you benefit, and the less you make, the more you pay. This is a form of socialism: upward redistribution to enrich those at the top.
While two-thirds of the poorest Americans -- the ones getting by on less than $1,500 a month -- face a tax increase, the share of people hit with tax increases falls off quickly as you move up the income stepladder.
In the next lowest quintile, taxpayers with cash incomes of under $35,000, 40 percent saw their taxes rise, while in the middle quintile (under $64,000), one in five got a tax increase. In the fourth quartile (under $104,600), one in eight got a tax hike, and in the top quartile, one in 20 did.
At the top, just 1.8 percent of the top 1 percent (more than $564,600) were hit with a tax increase. Just 1.3 percent among the top tenth of 1 percent (more than $2 million) got a tax hike. These best-off one in 1,000 Americans got a tax cut worth on average $45,000 each, all financed with borrowed money.
In raising taxes on the working poor (and the just plain poor), our supposedly socialist president proved himself at one with Ronald Reagan, the subject of all sorts of hagiography this month on what would have been his 100th birthday. Hardly any of the effusive praise points out that while Reagan polished his image as a tax cutter, he was in fact a tax raiser par excellence who presided over a massive expansion of government spending that primarily benefited the affluent and rich.
Reagan raised taxes in seven of the eight years he was governor of California, including when he abandoned his "taxes should hurt" rhetoric to impose withholding so he could expand state spending on the Highway Patrol and other policing. In Washington, Reagan presided over 11 increased levies.
The perpetually obsequious Washington press corps let his administration call these tax increases "revenue enhancers." The late Murray N. Rothbard, a hero to libertarians and self-proclaimed dean of the Austrian school of economics, called this Reaganism "a nice touch of creative Orwellian semantics."
Table 1. Tax Increases at the Bottom, Tax Savings for the Better Off
Source: Tax Policy Center Table T10-278.
This same pattern of focusing on tax cuts and ignoring tax increases continues. Ask anyone you know how much Obama cut their taxes in 2009 and 2010. Go ahead, try it. Expect perplexed looks and responses along the lines of "You mean tax increases, don't you?" Last fall Michael Cooper of The New York Times asked North Carolinians at the Pig Pickin' and Politickin' rally about the Obama tax cuts. "Say what?" was the basic response, even though 97 percent of Americans got a tax break that averaged $1,200 over two years.
One survey found that fewer than 10 percent of Americans were aware of the Making Work Pay tax credit.
That so few Americans understood that Obama provided them with a tax cut is because of two forces. One is the hostile coverage he gets, not just from Fox News and the increasingly politicized news pages of Rupert Murdoch's Wall Street Journal, but from the press generally. The other is the major reason that mainstream journalists treat Obama more harshly than his predecessor. The operation Obama put in place to respond to questions from reporters is run entirely by people with no press experience, many of whom act like they work for the candidate, not the office of the president.
The fact that the Making Work Pay tax credit came mostly as a reduction in withholding that put an extra $8 or $16 in weekly take-home pay also hurt. Many people saw their take-home pay increase, but had no idea why.
Even the sagacious Floyd Norris, the extraordinarily astute New York Times columnist, missed that Obama and the GOP joined forces to raise taxes on the working poor. He wrote in his finance column last month that "nearly everyone with a job got a raise in January, courtesy of Uncle Sam, who reduced payroll taxes."
In a backhanded way, Norris acknowledged in his blog -- but not in print where most of his readers are -- that a reader who complained that 51 million people got a tax increase "has a point. . . . [The column] should have mentioned that the failure to renew a provision that benefited low-wage workers will hurt many workers."
This pattern of benefits that grows along with income is what got us into this debt mess. It began with Reagan, who turned perennial, insignificant deficits since President Johnson's last budget into buckets of red ink with little to show for it in terms of widespread economic benefit.
From 1980 through 1988, the average income of the bottom 90 percent rose just $369, or 1.2 percent, in 2008 dollars, ending three decades during which the average incomes of the bottom 90 percent grew faster than those at the top.
Under Reagan, those on the 95th to 99th rungs on the income ladder saw their average income rise by $23,681, or 16.9 percent. That's 14 times the rate of increase for the bottom 90 percent.
The bottom half of the top 1 percent enjoyed a 32 percent increase, those from 99.5 percent to 99.9 percent a 57.7 percent increase, and the top tenth of 1 percent a 105.6 percent gain.
So under Reagan, the wealthiest Americans saw their incomes grow at more than 100 times the rate of the vast majority. Of course, that was what was intended by cutting the top tax rate from 70 percent to 28 percent and slashing capital gains taxes -- making it less costly to take money out of businesses to enhance the lifestyles of the owners, spawning a huge growth in the prices of unproductive assets, especially multiple mansions and objets d'art.
This pattern continued under President George W. Bush. More than half the 10-year cost of the Bush tax cuts benefited the top 5 percent, and 72 percent of that went to the top 1 percent, while the middle fifth of taxpayers got just 7.4 percent of the tax relief, Citizens for Tax Justice calculated.
The cost of the Bush tax cuts cost for the first 10 years, including interest, was almost $2.5 trillion. That's two and a half times the cost of the healthcare law sponsored by Obama. Now ask yourself which spending plan -- the Bush tax cuts and their extension or a step toward universal and reliable health insurance -- most people think is responsible for our huge budget deficits and national debt?
Amazingly, the people who raised taxes and supported raising taxes on the poor insist they are universal tax cutters.
Last September, Senate Republican Whip Jon Kyl of Arizona said his party's senators had gathered to discuss taxes and that "every Republican was absolutely supportive of the idea that there shouldn't be any increases in taxes."
A week later Senate Minority Leader Mitch McConnell, R-Ky., said, "No one should pay higher income taxes next year."
McConnell spoke as he introduced a bill that extended the Bush tax cuts, but not Obama's. Yet not one reporter asked McConnell about why he was seeking to raise taxes on the working poor. Of course, if the working poor are considered "no one," then what McConnell said makes sense, especially for a man who inherited his wealth, which his disclosure statements put at between $7.1 million and $32.8 million.
Or how about House Majority Leader Eric Cantor, R-Va.? "We don't feel that there should be anyone suffering a tax rate increase right now while we've got nearly 10 percent unemployment," Cantor told Bloomberg Television in November. In January he said, "Taxes shouldn't be going up on anybody right now."
But, thanks in good part to Cantor, they did for a third of Americans.
The hard truth is this: All 208 senators and representatives who signed Norquist's "taxpayer protection pledge" broke part two of their pledge in December. Yet Norquist actually praised the pledge violators, saying the December tax bill was, for Republicans, "a much bigger victory than people see."
Table 2. Maximum Tax Savings on Wages Per Taxpayer
Source: Author's calculations based on code.
This isn't the first time Norquist and his hilariously misnamed Americans for Tax Reform have looked the other way when members broke the pledge. Remember that 2006 tax increase on teenagers who had jobs and saved money for college? And that tax hike was retroactive. At the time, Norquist told me he had no idea such a bill had been passed, much less that it was sponsored by Republicans. He said he would get on it, but he did exactly nothing, at least publicly. For those who have not read it, the Americans for Tax Reform signers pledge two things. It is the second part that was not just violated, but ravished, by the pledge signers in December:
In 2009 almost 62 million workers, 41 percent of everyone who had a job that year, made less than $20,000. And 100.6 million workers, exactly two out of three people with jobs, made less than $40,000, the Medicare tax database shows. The Obama-GOP tax increase applied to everyone with a job that paid under $20,000 ($40,000 for married heterosexual couples). So while at least 90 percent of Americans are uninformed about this tax increase, you can now contribute to the factual basis of our national tax debate by pointing out to others that Obama and the GOP, along with a lot of congressional Democrats, enacted a bipartisan tax increase on the working poor in violation of their campaign pledges.
Your thoughts? E-mail me at JohnstonsTake@tax.org.
On Capitol Hill, the Democrats and Republicans may no longer play cards and drink together, but that does not seem to stop them from working together to shift tax burdens down the income ladder even when it violates their promises on the campaign trail.
Grover Norquist calls bipartisanship the political equivalent of date rape. But there is one group that President Obama, many congressional Democrats, and all congressional Republicans ganged up on in December -- the working poor.
The tax compromise passed in December has been hailed everywhere as a payroll tax cut combined with an extension of the Bush tax cuts, despite the fact that it raised taxes on a third of Americans. The killing of Obama's Making Work Pay tax credit, which the White House called the biggest middle-income tax cut ever, and the replacement of it with the Republicans' payroll tax cut raised taxes on single workers whose wages come to $20,000 or less and married couples with less than $40,000 in wages.
That's 51 million taxpayers, the Tax Policy Center estimated. (See Table T10-277.)
Among the poorest fifth of tax units, whose annual cash income is less than $17,878, two-thirds got hit with a tax increase. On average, their taxes went up $134, which is 1.3 percent of this group's total cash income.
Consider a single worker who makes $6,000. That was the average wage of the bottom third of workers in 2009, the Medicare tax database shows. Killing the Making Work Pay credit in favor of the payroll tax cut amounted to a tax increase of $252, or 4 percent of total income.
Looked at another way, some workers will labor for 23 days this year and next just to pay increased taxes.
The pattern of the Republican-Obama tax plan is a clear stepladder in which the more you make, the more you benefit, and the less you make, the more you pay. This is a form of socialism: upward redistribution to enrich those at the top.
While two-thirds of the poorest Americans -- the ones getting by on less than $1,500 a month -- face a tax increase, the share of people hit with tax increases falls off quickly as you move up the income stepladder.
In the next lowest quintile, taxpayers with cash incomes of under $35,000, 40 percent saw their taxes rise, while in the middle quintile (under $64,000), one in five got a tax increase. In the fourth quartile (under $104,600), one in eight got a tax hike, and in the top quartile, one in 20 did.
At the top, just 1.8 percent of the top 1 percent (more than $564,600) were hit with a tax increase. Just 1.3 percent among the top tenth of 1 percent (more than $2 million) got a tax hike. These best-off one in 1,000 Americans got a tax cut worth on average $45,000 each, all financed with borrowed money.
In raising taxes on the working poor (and the just plain poor), our supposedly socialist president proved himself at one with Ronald Reagan, the subject of all sorts of hagiography this month on what would have been his 100th birthday. Hardly any of the effusive praise points out that while Reagan polished his image as a tax cutter, he was in fact a tax raiser par excellence who presided over a massive expansion of government spending that primarily benefited the affluent and rich.
Reagan raised taxes in seven of the eight years he was governor of California, including when he abandoned his "taxes should hurt" rhetoric to impose withholding so he could expand state spending on the Highway Patrol and other policing. In Washington, Reagan presided over 11 increased levies.
The perpetually obsequious Washington press corps let his administration call these tax increases "revenue enhancers." The late Murray N. Rothbard, a hero to libertarians and self-proclaimed dean of the Austrian school of economics, called this Reaganism "a nice touch of creative Orwellian semantics."
Table 1. Tax Increases at the Bottom, Tax Savings for the Better Off
Source: Tax Policy Center Table T10-278.
This same pattern of focusing on tax cuts and ignoring tax increases continues. Ask anyone you know how much Obama cut their taxes in 2009 and 2010. Go ahead, try it. Expect perplexed looks and responses along the lines of "You mean tax increases, don't you?" Last fall Michael Cooper of The New York Times asked North Carolinians at the Pig Pickin' and Politickin' rally about the Obama tax cuts. "Say what?" was the basic response, even though 97 percent of Americans got a tax break that averaged $1,200 over two years.
One survey found that fewer than 10 percent of Americans were aware of the Making Work Pay tax credit.
That so few Americans understood that Obama provided them with a tax cut is because of two forces. One is the hostile coverage he gets, not just from Fox News and the increasingly politicized news pages of Rupert Murdoch's Wall Street Journal, but from the press generally. The other is the major reason that mainstream journalists treat Obama more harshly than his predecessor. The operation Obama put in place to respond to questions from reporters is run entirely by people with no press experience, many of whom act like they work for the candidate, not the office of the president.
The fact that the Making Work Pay tax credit came mostly as a reduction in withholding that put an extra $8 or $16 in weekly take-home pay also hurt. Many people saw their take-home pay increase, but had no idea why.
Even the sagacious Floyd Norris, the extraordinarily astute New York Times columnist, missed that Obama and the GOP joined forces to raise taxes on the working poor. He wrote in his finance column last month that "nearly everyone with a job got a raise in January, courtesy of Uncle Sam, who reduced payroll taxes."
In a backhanded way, Norris acknowledged in his blog -- but not in print where most of his readers are -- that a reader who complained that 51 million people got a tax increase "has a point. . . . [The column] should have mentioned that the failure to renew a provision that benefited low-wage workers will hurt many workers."
This pattern of benefits that grows along with income is what got us into this debt mess. It began with Reagan, who turned perennial, insignificant deficits since President Johnson's last budget into buckets of red ink with little to show for it in terms of widespread economic benefit.
From 1980 through 1988, the average income of the bottom 90 percent rose just $369, or 1.2 percent, in 2008 dollars, ending three decades during which the average incomes of the bottom 90 percent grew faster than those at the top.
Under Reagan, those on the 95th to 99th rungs on the income ladder saw their average income rise by $23,681, or 16.9 percent. That's 14 times the rate of increase for the bottom 90 percent.
The bottom half of the top 1 percent enjoyed a 32 percent increase, those from 99.5 percent to 99.9 percent a 57.7 percent increase, and the top tenth of 1 percent a 105.6 percent gain.
So under Reagan, the wealthiest Americans saw their incomes grow at more than 100 times the rate of the vast majority. Of course, that was what was intended by cutting the top tax rate from 70 percent to 28 percent and slashing capital gains taxes -- making it less costly to take money out of businesses to enhance the lifestyles of the owners, spawning a huge growth in the prices of unproductive assets, especially multiple mansions and objets d'art.
This pattern continued under President George W. Bush. More than half the 10-year cost of the Bush tax cuts benefited the top 5 percent, and 72 percent of that went to the top 1 percent, while the middle fifth of taxpayers got just 7.4 percent of the tax relief, Citizens for Tax Justice calculated.
The cost of the Bush tax cuts cost for the first 10 years, including interest, was almost $2.5 trillion. That's two and a half times the cost of the healthcare law sponsored by Obama. Now ask yourself which spending plan -- the Bush tax cuts and their extension or a step toward universal and reliable health insurance -- most people think is responsible for our huge budget deficits and national debt?
Amazingly, the people who raised taxes and supported raising taxes on the poor insist they are universal tax cutters.
Last September, Senate Republican Whip Jon Kyl of Arizona said his party's senators had gathered to discuss taxes and that "every Republican was absolutely supportive of the idea that there shouldn't be any increases in taxes."
A week later Senate Minority Leader Mitch McConnell, R-Ky., said, "No one should pay higher income taxes next year."
McConnell spoke as he introduced a bill that extended the Bush tax cuts, but not Obama's. Yet not one reporter asked McConnell about why he was seeking to raise taxes on the working poor. Of course, if the working poor are considered "no one," then what McConnell said makes sense, especially for a man who inherited his wealth, which his disclosure statements put at between $7.1 million and $32.8 million.
Or how about House Majority Leader Eric Cantor, R-Va.? "We don't feel that there should be anyone suffering a tax rate increase right now while we've got nearly 10 percent unemployment," Cantor told Bloomberg Television in November. In January he said, "Taxes shouldn't be going up on anybody right now."
But, thanks in good part to Cantor, they did for a third of Americans.
The hard truth is this: All 208 senators and representatives who signed Norquist's "taxpayer protection pledge" broke part two of their pledge in December. Yet Norquist actually praised the pledge violators, saying the December tax bill was, for Republicans, "a much bigger victory than people see."
Table 2. Maximum Tax Savings on Wages Per Taxpayer
Source: Author's calculations based on code.
This isn't the first time Norquist and his hilariously misnamed Americans for Tax Reform have looked the other way when members broke the pledge. Remember that 2006 tax increase on teenagers who had jobs and saved money for college? And that tax hike was retroactive. At the time, Norquist told me he had no idea such a bill had been passed, much less that it was sponsored by Republicans. He said he would get on it, but he did exactly nothing, at least publicly. For those who have not read it, the Americans for Tax Reform signers pledge two things. It is the second part that was not just violated, but ravished, by the pledge signers in December:
- ONE, oppose any and all efforts to increase the marginal income tax rates for individuals and/or businesses; and TWO, oppose any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates.
In 2009 almost 62 million workers, 41 percent of everyone who had a job that year, made less than $20,000. And 100.6 million workers, exactly two out of three people with jobs, made less than $40,000, the Medicare tax database shows. The Obama-GOP tax increase applied to everyone with a job that paid under $20,000 ($40,000 for married heterosexual couples). So while at least 90 percent of Americans are uninformed about this tax increase, you can now contribute to the factual basis of our national tax debate by pointing out to others that Obama and the GOP, along with a lot of congressional Democrats, enacted a bipartisan tax increase on the working poor in violation of their campaign pledges.
Your thoughts? E-mail me at JohnstonsTake@tax.org.
Comments (6)
If only the poor could organize $1,000-a-plate fundraisers, maybe somebody
would give a damn about them. Regression hits even harder at the state level,
with those elected, sworn to never ever raise taxes, increasing fees and fines
for revenue.
Posted by Dana Sullivan on Feb. 14, 2011 at 12:24 PM
would give a damn about them. Regression hits even harder at the state level,
with those elected, sworn to never ever raise taxes, increasing fees and fines
for revenue.
Posted by Dana Sullivan on Feb. 14, 2011 at 12:24 PM
This is courageous journalism--the kind we never see in the corporate media.
Thank you for bringing us the story that so many want to ignore.
Posted by Daniel Middelburg on Feb. 14, 2011 at 01:12 PM
Thank you for bringing us the story that so many want to ignore.
Posted by Daniel Middelburg on Feb. 14, 2011 at 01:12 PM
My take home pay just dropped by about $30 per paycheck. I really appreciate
that more than Congress would ever know. I was having problems buying enough
food before, this tax increase has made it more difficult.
Posted by Brian Bigelow on Feb. 14, 2011 at 01:52 PM
that more than Congress would ever know. I was having problems buying enough
food before, this tax increase has made it more difficult.
Posted by Brian Bigelow on Feb. 14, 2011 at 01:52 PM
Let's follow your example of a $6,000 a year wage earner all the way through
and add an assumption that this individual is single with no kids:
2010 Federal taxes paid:
Payroll taxes - 7.65% = $459
Income taxes = $0
Making Work Pay Credit = ($400)
Earned Income Credit = ($457)
Total 2010 Federal taxes are a net check received from the government of $398.
2011 Federal taxes paid:
Payroll taxes - 5.65% = $339
Income taxes = $0
Making Work Pay Credt = $0
Earned Income Credit = ($457)
Total 2011 Federal taxes paid are a net check received from the government of
$118.
So yes, a person in this situation will receive less of a government handout,
but to state that they had to work "23 days this year and next just to pay
increased taxes" is wrong because the individual doesn't pay taxes, they are a
net beneficiary of our Federal government. If you do this example with the
assumption of a child, then the government handouts grow quite a bit.
Posted by Kevin L on Feb. 14, 2011 at 01:57 PM
and add an assumption that this individual is single with no kids:
2010 Federal taxes paid:
Payroll taxes - 7.65% = $459
Income taxes = $0
Making Work Pay Credit = ($400)
Earned Income Credit = ($457)
Total 2010 Federal taxes are a net check received from the government of $398.
2011 Federal taxes paid:
Payroll taxes - 5.65% = $339
Income taxes = $0
Making Work Pay Credt = $0
Earned Income Credit = ($457)
Total 2011 Federal taxes paid are a net check received from the government of
$118.
So yes, a person in this situation will receive less of a government handout,
but to state that they had to work "23 days this year and next just to pay
increased taxes" is wrong because the individual doesn't pay taxes, they are a
net beneficiary of our Federal government. If you do this example with the
assumption of a child, then the government handouts grow quite a bit.
Posted by Kevin L on Feb. 14, 2011 at 01:57 PM
@Kevin L:
Would you call a 145,000$ income tax reimbursement, a government handout?
If so, then you are justifed to use the word "handout". If not, then your
prejudices stinks to high heaven.
Posted by Francois T on Feb. 14, 2011 at 02:17 PM
Would you call a 145,000$ income tax reimbursement, a government handout?
If so, then you are justifed to use the word "handout". If not, then your
prejudices stinks to high heaven.
Posted by Francois T on Feb. 14, 2011 at 02:17 PM
KevinL is representative of the problem that exist today in our culture that
will ultimately wind up being our unraveling... To perceive a $118 dollar
refund as a "handout" to someone making $6000.00 a year, is deplorable and
disgusting. Shame on you sir.
Posted by Albert Preposterous on Feb. 14, 2011 at 02:58 PM
will ultimately wind up being our unraveling... To perceive a $118 dollar
refund as a "handout" to someone making $6000.00 a year, is deplorable and
disgusting. Shame on you sir.
Posted by Albert Preposterous on Feb. 14, 2011 at 02:58 PM
First, the Making Work Pay credit was sold as temporary stimulus, not permanent
tax policy. Therefore including it in any baseline is incorrect. Yes, the
precise distribution of benefits under the payroll tax cut is slightly
different than under MWP, but there's no non-partisan reason to regard either
the former or the latter as a gold standard. They're just two programs with a
similar objective.
Second, the use of statistics here is Krugmanesque. The $6000 income level is
impossible for a full-time worker ($3 per hour?) but it just happens to
coincide with the widest part of the gap between the 2% payroll tax cut and the
former Making Work Pay credit. How anyone can labor 23 days to earn $252 is
beyond me. Yes, I know the article cleverly includes a factor of two ("this
year and the next"), but there must also be some really new math in there
somewhere. In the US, people earn more than $22 per day.
The real story is that the stimulus benefits for 2011 are distributed slightly
differently than they were for 2010 and 2009. Told straight, that story is not
very exciting.
Posted by AMT buff on Feb. 14, 2011 at 04:57 PM
tax policy. Therefore including it in any baseline is incorrect. Yes, the
precise distribution of benefits under the payroll tax cut is slightly
different than under MWP, but there's no non-partisan reason to regard either
the former or the latter as a gold standard. They're just two programs with a
similar objective.
Second, the use of statistics here is Krugmanesque. The $6000 income level is
impossible for a full-time worker ($3 per hour?) but it just happens to
coincide with the widest part of the gap between the 2% payroll tax cut and the
former Making Work Pay credit. How anyone can labor 23 days to earn $252 is
beyond me. Yes, I know the article cleverly includes a factor of two ("this
year and the next"), but there must also be some really new math in there
somewhere. In the US, people earn more than $22 per day.
The real story is that the stimulus benefits for 2011 are distributed slightly
differently than they were for 2010 and 2009. Told straight, that story is not
very exciting.
Posted by AMT buff on Feb. 14, 2011 at 04:57 PM
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