For the next two years we'll be living in tax heaven: we're going to have the Bush tax cuts extended, along with all the other cuts established during the Great Recession. So much for deficit reduction.
The American people didn’t send us here to wage symbolic battles or win symbolic victories. They would much rather have the comfort of knowing that when they open their first paycheck on January of 2011, it won’t be smaller than it was before, all because Washington decided they preferred to have a fight and failed to act.
Make no mistake: Allowing taxes to go up on all Americans would have raised taxes by $3,000 for a typical American family. And that could cost our economy well over a million jobs.
At the same time, I’m not about to add $700 billion to our deficit by allowing a permanent extension of the tax cuts for the wealthiest Americans. And I won’t allow any extension of these tax cuts for the wealthy, even a temporary one, without also extending unemployment insurance for Americans who’ve lost their jobs or additional tax cuts for working families and small businesses — because if Republicans truly believe we shouldn’t raise taxes on anyone while our economy is still recovering from the recession, then surely we shouldn’t cut taxes for wealthy people while letting them rise on parents and students and small businesses.
As a result, we have arrived at a framework for a bipartisan agreement. For the next two years, every American family will keep their tax cuts — not just the Bush tax cuts, but those that have been put in place over the last couple of years that are helping parents and students and other folks manage their bills.
So we may see the Bush tax cuts extended. The deal still needs Congressional approval – not a sure thing since something some Democrats are adamantly opposed to this compromise.
In addition to the lower brackets included in the Bush tax cuts, the two year extension will include a two-year, two percentage-point reduction in the payroll tax for lower-income Americans to replace the “making work pay” tax credit enacted in the 2009 economic stimulus package. So instead of paying 6.2% Social Security tax, they’ll only pay 4.2%. Also benefiting low and middle-income filers: a two-year extension of a higher earned income tax credit, child credit and credit for college costs.
The package compromise also extends by 13 months the ability to file for extended federal unemployment benefits: in some states they go as high as 99 weeks. Without this extension, as many as 7 million Americans would have lost benefits by year-end.
On the other end of the spectrum, it also caps the estate tax for 2011 at 35% for estates valued at more than $5 million. Without this compromise, estates over $1 million would have been taxed, with rates as high as 55%.
In total, this compromise will add hundreds of billions of dollars to the federal deficit. And because these are largely considered emergency measures, “pay as you go” rules that require Congress to reduce spending to offset decreases in revenue won’t apply.