Dems stand in way of Obama's tax deal

By Jeannine Aversa and Paul Wiseman Dec 8, 2010 11:35AM


The tax deal struck by President Obama and congressional Republicans essentially would give Americans a pay raise — pumping money into the economy almost immediately and probably creating hundreds of thousands of jobs over the next two years, economists say. The plan faces strong opposition from Democrats, making its passage uncertain.

The compromise already has economists raising their forecasts for growth next year, mainly because it includes a surprising one-year cut in Social Security taxes. The amount of that cut — 2 percent of pay for most American workers — instantly becomes more take-home money. Critics complain that the deal would further swell the $1.3 trillion federal budget deficit.

Two central parts of the agreement extend income-tax cuts that would have expired Dec. 31 and renew benefits for the long-term unemployed. Those were both expected. But they still give a psychological boost to shoppers in the midst of the holiday shopping season.

Ariel Investments President Mellody Hobson said failure to extend the Bush tax cuts would have amounted to “an anti-stimulus.” The payroll tax cut will be “very helpful for the average person,” and reform of the alternative minimum tax means “millions of individuals are going to be excluded from that,” she said. “I think that’s a very good thing for a lot of people.”

The activist group Citizens for Tax Justice estimates that the plan would save the average taxpayer just under $3,000 next year. The top 1 percent of earners would save nearly $77,000 on average. And the poorest 20 percent would get an average tax break of $396.

Under the deal, the president and the GOP agreed to extend benefits for the long-term unemployed for 13 more months. That aid had expired Nov. 30. Up to 2 million unemployed people would have run out of benefits by year’s end. On long-term unemployment aid, the Labor Department says every $1 spent generates $2 in economic growth. The Center for American Progress predicts that extending those benefits through next year will generate or save 520,000 jobs.

Economists note that cutting Social Security taxes and extending unemployment benefits free up more cash for low- and moderate-income families who are most likely to spend it.


http://www.suntimes.com/2730969-417/deal-tax-benefits-average-economists.html