President Obama has agreed with GOP negotiators on a "framework" to extend all of the Bush tax cuts for two years--including a package of cuts for the wealthy and big corporations, getting only extension of unemployment benefits and the more or less useless "making work pay" credits in return. He also agreed to a "temporary reduced estate tax" at 35% rate and $5 million extension, as the trade for a payroll tax holiday of 2%. See Lochhead,
Obama Announces Tenative Deal on Tax Cuts, PoliticsBlog, San Francisco Chronicle, Dec. 6, 2010.
How sad. The death of the estate tax this year is the best opportunity the Democrats will have in the next forty years to get the estate tax right--meaning make it progressive, so that no one in the lower quintiles of the income and wealth distribution will have to pay it (not much chance of that no matter what the final shape of the estate tax is) and so that the wealthy have to be a bigger and bigger share of their estate upon their death to make up for the fact that almost nothing is paid on their incomes during life. As noted frequently here, the wealthy in the top 2% or so who may end up paying some estate tax are the ones that own the vast majority of the financial assets. Much of their income isn't taxed at all--the very wealthy are the primary group that owns tax-exempt municipal bonds and that income isn't subject to taxation. (In his first year in office, Vice President Cheney had some $2 million of tax exempt interest on which he paid no income tax.) Most of the rest of their income ends up being taxed at very preferential capital gains rates. Since the wealthy can control the time of sales of their assets, they generally time them for low rate or for ability to use loses to offset gains, further ensuring that they minimize the taxes paid. Accordingly, the estate tax serves as a backstop to ensure that they contribute something to the government that has facilitated their wealth. It should provide a $2 million exemption and a steeply progressive rate (beginning at 45% and increasing to as high as 65% or more).
Further, extending the Bush tax cuts for the wealthy and giving multinationals (who already are enjoying the cheapest borrowing rate imaginable because of the Fed's policies and other benefits) another huge tax break by permitting 100% expensing (at a $200 billion cost) is more of the "winner-take-all" politics that has caused the decimation of ordinary working Americans by giving all the benefits of the tax system to those at the top. Letting the GOP succeed in extending the cuts on Obama's watch even before the minority becomes the majority in the House in January means Obama now takes credit for the Bush tax cuts and can no longer take the high ground.
What's even worse is that Obama tried to sell his weak compromise as "an essential step on the road to recovery", saying that these tax cuts have a hand in spurring the private sector to create millions of new jobs and add momentum to the economy. That's falling into the Republican trap of claiming that tax cuts do a lot to create jobs. They don't. The rich will invest in businesses overseas or use their money to fund private equity deals that buy out companies so they can lay off workers. Allowing businesses to expense has been tried for years--it was a huge part of the Bush tax cuts, and they failed on creating jobs. Expensing doesn't encourage businesses to invest more--they already have more cash on hand than ever so they have every reason to invest in equipment if they need to without the tax subsidy to them. Infrastructure spending is the best way to create jobs, and while the lower-end tax cuts will help keep spending up, they won't really create any jobs. It's an oversell that will show win it comes time for the 2012 elections and the vast majority of the American workforce is still suffering while the well-off stay well-off.
What a shame that Obama caves so easily. Not voting an extension of unemployment benefits wasn't an option for the GOP, so treating that as something "won" in the negotiation is foolish. Similarly, the payroll holiday--while it will get money in the hands of the working class--is also something that will cause the Social Security fund to run short sooner, giving the GOP even more ammunition to privatize and/or cut benefits, which is their goal. The Democrats just don't seem to be able to play the politics game well at all. Instead of letting GOP leader McConnell have his ear for the last week, Obama should have been helping to twist arms in the Senate to ensure that all Democrats and some Republicans stood with the American people.
Of course, the pundits recognize that the Bush tax cuts were "incredibly expensive" and "deeply flawed conceptiually" but then assume that "Obama can't afford to let all the $3.3 trillion in tax cuts expire as scheduled on December 31." I think that is wrong. I suspect that if Obama and the Dems would force the Republicans to vote (and in the Senate force a real filibuster), they would find that Americans don't get enough dollars in their pockets from the lower-class tax cuts to make that much of a difference. Let them expire. Then pass a new tax cut bill in January through a reconcilation measure.
It will be very hard for progressives to support Obama in the future. If he doesn't have the ability to negotiate with Congress better than he has demonstrated on this issue he comes across as a failure. And it is a failure that reinforces the "winner-take-all" nature of politics and tax policy that has resulted in banksters making millions while millions of ordinary Americans suffer. Too bad that the "change we can believe in" president turned into a "sorry I can't" president.
By Linda Beale
