The Bush tax cut deal includes across the board benefits, but the generosity of the tax breaks goes up with income. Image: CC iBjorn/Flickr

Coverage of the Bush tax cut deal proposed by the Obama administration this week has focused on tax cuts for the rich. But the tax compromise contains other provisions that would benefit ordinary Americans, depending on how well off they are. Economists are praising the deal as a stimulus package once thought impossible after the midterm elections.

Inside the Bush tax cut deal

The Bush tax cut deal will cost the federal government nearly $900 billion dollars over the next two years. A great deal of that money will go to people who could live very comfortably without it. But what is left of the middle class stands to benefit from such items as a payroll tax holiday, child tax credit, a tuition tax credit and a federal unemployment extension carrying through 2011. If the Bush tax cuts had expired as planned, middle class taxpayers would be taking home up to $200 dollars less on payday starting next month. Lower-income Americans would have seen their payroll tax rate rise from 10 percent to 15 percent.

More tax cuts for the rich

There’s something for everyone in the Bush tax cut deal. But the benefits are skewed toward the rich. The payroll tax holiday takes two percentage points off the current 6.2 percent taken out of paychecks. Someone making $100,000 would get a tax cut ten times bigger than someone making $10,000. Census data shows the average U.S. family earns about $52,000 a year. A Bush tax cut extension will save these households $1,180 on average in 2011–about 2.3 percent of income. Families earning from $200,000 to $500,000 would save about $7,500. Taxpayers making $1 million and more, about $129,000 — nearly 6.2 percent of income.

Where the money goes

Broken down into Republican and Democratic wishes, the Bush tax cut deal favors the latter. Of its $900 billion cost, just $120 billion goes to tax cuts for the rich. Tax breaks proposed by the Obama administration take $450 billion from the total. The Bush tax cut extensions for the middle class will cost $360 billion. Economists are praising the deal. Analysts revised estimates for economic growth and employment upward on the news. Liberal research groups in Washington said the Bush tax cut deal will do more to create jobs than anyone hoped with Republicans in control of Congress.

Sources

CNNMoney.com

MainStreet

New York Times

Solar panels are just one of the things PACE loans are used for. Image from Clownfish on Flickr.

PACE loans, otherwise known as Property Assessed Clean Energy Bonds, are quick personal loans provided by cities to homeowners. Intended to finance energy-efficiency upgrades and retrofits, these PACE loans are paid off as a part of the property taxes on a house. Fannie Mae and Freddie Mac, along with the Federal Housing Finance Agency, though, have muscled these loans out of the market.

How PACE loans work

PACE loans, which have been used everywhere from San Fransisco to New York City, are “bond-backed loans.” Basically, the a homeowner gets finance loans for energy improvements from the city. The city then turns around and sells these loans as bonds. When time comes for the homeowner to pay off these loans, the money is simply added to the taxes for the house. The energy improvements, such as solar panels or extra insulation, stay with the house — and so do the payments. These loans are a way for cities to help their residents finance personal installment loans that move each city towards energy independence. The federal stimulus package helps provide the money to get these programs going.

The problem with PACE loans

If PACE loans are a way for cities and housing to improve and for the country to move toward energy independence, why are federal agencies such as the Housing Finance Agency against them? In short, because they might not get paid. If a mortgage enters default or foreclosure, the bank or mortgage holder can try to sell the house to make back its  money. However, liens such as property taxes have to be paid before the mortgage lender gets any money. Because PACE loans are paid as a part of property taxes, this means they get paid back before the mortgage lender if the mortgage goes into default.

Will PACE Loans continue?

No federal agency has yet taken action to shut down PACE loans, officially. However, many mortgage lenders are tightening standards for their mortgage installment loan programs in places where PACE is available. House Energy and Commerce Committee Chairman Henry Waxman and House Financial Services Committee Chairman Barney Frank have written a letter “urging officials to work together quickly to resolve the uncertainty surrounding PACE programs.” No word yet on what the end result of this letter, and this conflict, will be.

image by flickr

Payday loans applications are flourishing as medical costs continue to weigh down Americans.  Currently there are millions of people seeking aid from government programs.  These programs can be confusing, however, and many people are being rejected for innocuous reasons such as location, rather than need.   Government aid comes in the form of health care, housing aid, and food stamps. But each one comes with its own set of rules and regulations to be eligible, and truly needy people can get caught in the red-tape.

Beverly Johnson of Kosciusko, Mississippi lost her job at a Bible college. When she went to apply for unemployment, she was told that as an employee of a religious school she was ineligible.  “That was a shock,” she said.  Most Americans believe that unemployment is there if they are let go but there are underlying rules with every government program.

Because there is so much fine-print when it comes to getting government assistance, payday loans are filling the gap.  When people need money, they look to payday loans as a reliable option because other options are so uncertain.  Martin Summerstein of Miami, Florida stated, “We use payday loans because they are available to us. You can’t count on the government, because one day help is there and the next it isn’t.”

Studies show

The New York Times did a study of state enrollment for six federal assistance programs and found a huge amount of disparity between them.  In California, only 50 percent of people who need food stamps get them, whereas in Missouri almost 98 percent of people get them.  In South Dakota, 19 percent of unemployed people get unemployment benefits, while Idaho gives benefits to 67 percent of its out of work citizens.

Political scientist at Harvard Theda Skocpol stated, “The system for helping Americans in need is very fragmented, and it confuses everyone. Some people are covered, and some people are not, even though they look like they’re in very similar circumstances,” says the New York Times.

The critics

The stimulus package has about $100 billion in safety net provisions but each state is able to decide whether or not to take advantage of it.  A few governors believe that to increase unemployment benefits would increase taxes on businesses and cut down on new job creation.  They rejected the assistance.

Some critics believe that this extra fund is detrimental.  They cited that payday loans and easily available federal aid can cause people to mismanage their budgets consistently.  “If people have options, they won’t be forced to rework their budgets and cut back where they need to. They can become dependent on extra money instead of being responsible.”  Stuart Butler of the Heritage Foundation believes that added government aid could also discourage people from seeking more education and better paying jobs.

Much-needed reform

In the end, President Obama has a lot to sort through.  His team has to react to the crisis and find ways of including needy people in government aid programs, without driving the economy deeper into a recession.

Shiela Zedlewski, of the Urban Institute, said “We have people (receiving all benefits) but we have far more people who get nothing. … A significant group remains outside the safety net.”  In the meantime, people are trying their best to use payday loans, family assistance and the government programs they are eligible for to stay afloat.  Hopefully, the president will be able to include help for everyone based on need and not on whether they find their way through red-tape.

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