As you probably know by now, a framework is emerging from the negotiations between the administration and the Congress on what to do about the expiring Bush tax cuts. As this plan takes shape -- and I'll be the first to admit there's stuff to like and dislike about it -- one thing is clear: it's a much stronger plan on our number one priority -- JOBS -- than anyone expected.
Our administration and our friends in Congress fought hard to block the two-year extension of tax cuts for the top 2% of households, and if there were a way to hold that line without putting working families and our economy at risk, we would have done so.
Those temporary high-end cuts do not stimulate growth or jobs. But agreeing to them does break the stalemate and in doing so, sets the stage for a package that both shields the middle-class from an imminent tax increase and promotes significant economic growth and jobs.
That said, some would have had us take up this fight, regardless of the costs to the working families and the broader economy. But in a fragile recovery, with an opposition determined, as seen in numerous votes so far, to block permanent middle-class tax relief without permanent cuts for the wealthy, a victory in that fight would have been a Pyrrhic one. And, as he said yesterday, President Obama was simply "not willing to let working families across this country become collateral damage to political warfare in Washington."
In the absence of a deal, that collateral damage would amount to well over a million jobs and tax increases of $3,000 for millions of middle-class families.
So the President stood firm on these key principles: 1) if we must accept tax cuts for the wealthiest Americans over the next two years, then taxes must not go up for lower and moderate income families, and 2) we must do all we can to support jobs and growth.
We won big on both. Here's what's in the plan agreed to this morning:
- A full extension of Unemployment Insurance for 13 months, an extension that will protect more than 7 million workers from losing their benefits, will help the unemployed make ends meet, and will create or save more than 600,000 jobs next year. It's probably the single most effective thing we can do to support jobs and the economy.
- A new, job-creating payroll tax cut for workers: a 2% payroll tax cut for rover 155 million workers, providing about120 billion in tax relief administered through higher paychecks. The key word here is "new." This piece of the agreement goes beyond extending policies that were already in place and is widely recognized as a potent way to generate jobs and growth.
That's real money that will help strapped working families, and, once they pump it back into the economy, will create more jobs.
The CBO recently reviewed this idea and wrote:
A payroll tax holiday that applied to the employees' share of the tax would have the advantage of directing more of the reduction to households more likely to spend it, even reaching taxpayers who could not qualify for a rebate on the basis of income tax returns.
- Extending the Bush tax cuts for two years: The deal extends the Bush income tax rates for two years. As noted, that meant breaking through the political impasse by accepting a) a temporary extension of the high-end cuts, and b) a regressive adjustment to the estate (the Lincoln-Kyl proposal--read about it here). We strongly object to both, and I assure you, these are fights we will live to have another day.
But it also means staving off a significant tax increase for millions of middle-class families -- more than2,000 for the typical family in the middle of the income scale. The deal also fixes the AMT to ensure that an additional 21 million households will not be hit with a tax increase.
- A set of other tax credit extensions, essential to the well-being of lower-income and middle-class families. These include the Earned Income Tax Credit, a wage subsidy to low-income workers that will benefit 10.5 million working parents with 15 million kids, the 1,000 Child Tax Credit, an extension which preserves tax relief to 6.5 million lower-income families with 18 million kids, and the American Opportunity Tax Credit, helping millions of families to partially offset the cost of college.
All told, we're talking about serious tax relief and targeted jobs measures quickly getting to work in an economic recovery that remains fragile. A typical working family with two members whose combined earnings are $75,000 comes away from this deal with over $2,000 in tax relief from the rate extensions, and another $1,500 from the payroll tax cut.
So that's the deal as it stands, folks. Like I said, we don't love everything about it -- our opposition to the high-end and estate cuts not only remains strong, but reversing those policies will be at the heart of the fight over taxes, jobs, and deficits over the next two years.
In the meantime, it's all about jobs, and in that regard, there's a very strong plan taking shape here.
Correction: A previous version of this post stated that an extension of unemployment benefits would create more than 600,000 jobs next year. This has been changed to state that the extensions would create or save more than 600,000 jobs next year.