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

A proposed compromise with Republicans by the Obama administration trades extending the Bush tax cuts for an unemployment extension. Image: CC blves boy/Flickr

A tax compromise announced by the Obama administration Tuesday features both an extension of Bush tax cuts and a  federal unemployment extension. Wall Street gave the tax compromise a resounding approval, approaching stock-market highs not seen since the brink of the financial crisis. However, politicians on both sides of the isle vowed to do everything in their power to scuttle the deal.

What the tax compromise is all about

The tax compromise outlined by the Obama administration is a proposal that extends the Bush tax cuts for all tax brackets another two years. The Bush tax cuts are scheduled to expire Dec. 31. The federal unemployment extension would last for one additional year. Other parts of the tax compromise include renewing the estate tax at a lower rate, which Congress allowed to lapse in 2010 and that Republicans want to end permanently. Instead of extending the Stimulus Act income tax cut that Republicans wanted, the tax compromise proposed a payroll tax cut that reduces Social Security contributions from 6.2 percent to 4.2 percent.

Markets surge on hint of bipartisanship

The Obama administration tax compromise was given credit by analysts for a stock market surge Tuesday that pushed Wall Street to highs not known since the September 2008 collapse of Lehman Brothers plunged the U.S. into an epic financial crisis. The tax compromise hasn’t yet been approved by Congress, but the certainty it promises infused more confidence in the stock market, which is coming off a strong November. As riskier investments like stocks become more attractive, the price of bonds fell while their yield rose. News of the tax compromise fuels a recent resurgence in U.S. markets that defies the fear in global markets over sovereign debt in Europe.

Politicians leave their blinders on

Despite positive reaction in the real world, extremists in Congress are vowing to contest the tax compromise. Comments from liberal Democrats about the tax compromise ranged from “a moral outrage” to “an absolute disaster.” Bernie Sanders, D-Vt., has vowed to filibuster the legislation. Right wing Republicans groused at the prospect of the Obama administration getting anything it wanted in the deal. Michelle Bachmann, R-Minn., told Fox News the GOP would not support an extension of federal unemployment benefits, even as more than 2 million jobless Americans are set to lose them Dec. 31.

Sources

Christian Science Monitor

Fox News

New York Times

Many of those affected by the failure of the unemployment extension bill are still sending out hundreds of resumes. Image: Flickr / wwworks / CC-BY

This afternoon, the House of Representatives failed to pass an unemployment extension. The unemployment extension would have added an extra 12 weeks to benefits. If Congress takes no action by Nov. 30, hundreds of thousands of people’s benefits will expire.

Unemployment extension basics

The unemployment extension bill that the House failed to pass today would have added extra time to the federal jobless rolls. State unemployment insurance usually covers 26 weeks of unemployment benefits. Federal unemployment extensions then kick in. Federal unemployment extension usually lasts about 73 weeks and continues to pay benefits to the unemployed. States administer the program, but the federal government funds it.

Unemployment extension bill fails

The last few times an unemployment extension has been on the table, the federal government has eventually voted to extend benefits. Six months ago, the House and Senate had a seven-week delay while they debated the $34 billion cost of extending unemployment benefits. Whenever Congress extend has extended unemployment, the extension was made retroactive, meaning those still on the unemployment rolls usually get all the money they would have otherwise.

The problem with unemployment extension

There are hundreds of thousands, if not millions of people who face losing their unemployment benefits if the extension does not pass. Unemployment insurance is a system that was originally developed as just that — insurance if and when things go wrong. The unemployment extensions are taking a larger and larger toll on the budget as rolls grow. Some economic theory says that supporting the unemployed is an important part of recovery in a weak economy – having no money makes it tough to contribute. At the same time, others say unemployment extensions are costing far too much money, and the money would be better spent on encouraging businesses to hire.

Are you facing a loss of benefits because the unemployment extension did not pass?

Sources

CNN.com

Senate Democrats mustered the votes to break a Republican filibuster on an unemployment benefits extension. Wikimedia Commons photo.

An extension of unemployment benefits for millions of jobless Americans overcame a Republican filibuster in the Senate Tuesday. About 2 million Americans have run out of jobless benefits since legislation stalled at the end of May. The U.S. unemployment rate is stuck at 9.5 percent. There are five times more people looking for work than there are available jobs. Most Democrats say unemployment benefits are an effective way to stimulate the economy. Some Republicans say unemployment benefits discourage people from looking for jobs.

Unemployment benefits escape Republican filibuster

The Senate voted 60-40 to break the Republican filibuster on the unemployment benefits extension. The vote took place minutes after Carte Goodwin was sworn in as the new Democratic senator from West Virginia to replace the late Robert C. Byrd. The New York Times reports that even after the vote, Democrats accused Republicans of needlessly stalling the unemployment extension by using their procedural power to delay the vote by another day rather than allow final consideration. Republicans said Democrats were forced to extend unemployment benefits because their efforts at lowering the U.S. unemployment rate with job creation had failed.

Unemployment benefits extended through November

The legislation extends unemployment benefits through November and retroactively covers people whose benefits have expired. USA Today reports that the House could pass the bill Wednesday and send it to President Obama for signing. Republicans said they wanted to help lower the U.S. unemployment rate, but only if the bill’s $33.9 billion price tag was offset with budget cuts elsewhere. On Monday, Obama accused Republicans of seeking to control federal spending “on the backs of the unemployed” while not demanding a way to pay for extending Bush administration tax cuts for the wealthy.

Unemployment benefits and economic recovery

The Congressional Budget Office says extending jobless benefits, which average nearly $310 a week, is the most efficient way for government policymakers to stimulate a weak economy. The unemployed spend their benefits on basic needs such as rent, food, gas and electricity. According to the CBO, every $1 spent on benefits generates 70 cents to $1.90 in economic growth.

Unemployment vote hardens political divide

Obama’s personal involvement in passing the unemployment extension has further hardened Republican opposition to virtually any attempt to govern the country. The Los Angeles Times reports that Tuesday’s Senate vote only increased the political divide in Congress and almost assured that any further domestic aid before November will be nearly impossible. Yet Democrats intend to press forward with new initiatives to promote job creation.

Unemployed Americans used as pawns in a political game

As November’s midterm elections draw closer, Democrats hope legislation like the extension of unemployment benefits will have an effect on job creation and economic recovery — as well as their chances for reelection. Republicans are trying to sabotage any Democratic achievements at all costs, in hopes that a fragile economy will improve their chances to regain control of Congress.

The late Robert Byrd. Wikipedia photo.

Carte Goodwin, an aide to West Virgina governor Joe Manchin, was appointed by Manchin to fill the seat left vacant by the June 28 death of Democratic Senator Robert Byrd. Unemployed Americans whose benefits have expired will have a new hero in Goodwin. As Byrd’s successor, he is expected to provide the vote that finally passes a jobs bill that will  extend unemployment benefits that has been stalled by a Republican filibuster.

With Carte Goodwin, the youngest replaces the oldest

When Carte Goodwin is sworn in, the 36-year-old attorney will be the youngest senator filling the seat left vacant by Byrd, who was the oldest senator in office when he died last month at the age of 92. CBS News reports that His vote will prove critical in the first hour of his service in the Senate. Goodwin will be sworn in on Tuesday afternoon, and minutes later, the Senate intends to vote on extending unemployment benefits, a proposal that has so far been blocked by a Republican filibuster.

Unemployed pawns in Republican agenda

The seat left vacant by Byrd has left Senate democrats without the 60 votes they need for the unemployment extension. The bill would re-establish an additional 73 weeks of benefits to unemployed workers who cannot find jobs. Republicans have argued that the unemployment extension just adds to the national deficit. Democrats believe that the unemployment extension bill would stimulate the economy because unemployment benefit recipients have to spend all the money to survive, which immediately puts it back into the economy. A report on all247news.com said that a Bloomberg poll showed 70 percent of American adults were more concerned with reducing the nation’s unemployment rate than reducing the national deficit.

Carte Goodwin vs. Joe Manchin for senator?

Carte Goodwin will hold the seat until the November general election. The Huffington Post reports that Goodwin already has ties to West Virginia’s Senate delegation. His wife, Rochelle, is state director for Senator Jay Rockefeller, Goodwin’s new Democratic colleague. Rockefeller called the governor’s pick “unquestionably among West Virginia’s best and brightest” in a Friday statement. Goodwin is not expected to run in November. Joe Manchin, his former boss, has already placed his dibs on the seat.

A tax credit extension giving home buyers until Sept. 30 to close their deals was in doubt because it is tied in with an unemployment extension being contested in Congress. Flickr photo.

Another tax credit extension to keep the moribund U.S. housing market from getting even worse was being considered by Congress. The deadline for real estate closings to qualify for a federal home buyer tax credit worth up to $8,000 is 11:59 p.m. Wednesday. The House voted Tuesday to extend the tax credit closing deadline to Sept. 30 for buyers who met the April 30 deadline to have a signed contract. But in the Senate the measure is part of a larger bill that also would extend unemployment insurance — a much harder sell. If the tax credit extension is not approved, thousands of potential home buyers will be left in the lurch.

Tax credit extension affects 180,000 deals

Stakes are high for the real estate industry as Congress fiddles with the tax credit extension. To be eligible, home buyers needed to have a contract in place by April 30. The tax credit closing deadline was originally June 30. But MarketWatch reports that the National Association of Realtors estimated about 180,000 buyers could kiss $8,000 goodbye if the original tax credit closing deadline is upheld. A big problem for buyers has been getting the mortgage approval on time as mortgage lenders work through a pipeline clogged with thousands of applications.

Home buyer tax credit bottleneck

When the contract signing deadline expired April 30, the last-minute home-buying rush overwhelmed the companies responsible for handling the sales, including mortgage lenders, appraisers, title insurers and real-estate brokers. The Wall Street Journal reports that the bottleneck has especially effected short sales, where a lender allows a home to sell for less than the amount owed. Unlike normal sales, where only two parties negotiate the price, short sales, resulting from the epidemic of foreclosures, are more time-consuming because they require all note-holders to agree on price. Realtors say the short sale bottleneck is even putting normal sales at risk.

Unemployment extension critical

Nearly 3 million taxpayers successfully claimed the home buyer tax credit through May 22 — totaling more than $21 billion — according to the Treasury Department. The Associated Press reports that Senate Democrats have combined the tax credit extension with an unemployment extension for laid-off workers whose benefits are being phased out to the tune of more than 200,000 a week. Democrats have been trying for weeks to pass the unemployment extension as part of a larger tax and spending package, but the bill died in the Senate last week. Republicans opposing the measure want to pay for the unemployment extension with unspent money from last year’s massive economic recovery package.

Extension won’t help U.S. housing market

The tax credit extension may help homebuyers waiting to close their deals, but it will have little to no effect on a U.S. housing market that appears to be withering on the vine. The home buyer tax credit was the catalyst that boosted existing home sales in April by 23 percent from a year earlier. New-home sales saw a 47.8 percent increase. But when the homebuyer tax credit expired at the end of April, home sales in May fell to the lowest levels since the Commerce Department began tracking home sales statistics in 1963.

Sen Jim Bunning (R-KY). From Wikimedia Commons

On March 1st, 2010, Senator Jim Bunning (R-KY) launched a one man filibuster opposing an extension on a bill that extended benefits for the unemployed.  It covered unemployment benefits, COBRA insurance, and other aid.  Sen. Bunning opposed the bill on grounds that insufficient funds were on hand to pay for it, and that unused stimulus funds should be used to pay for the $10 billion price tag.  Senate Republicans, along with fiscally conservative Democrats, have been warning that overspending will see the USA running for payday loans before long.  After prodigious coverage of the cantankerously portrayed MLB Hall of Famer, he has yet to agree to compromise.

Democrats and Republicans disturbed over outburst

Though his reasoning is certainly sound, and the national debt is absolutely a looming issue, the legislation that Bunning is obstinately in the way of is seen as a critical item, which will assist thousands during a time of unemployment.  Democrats and Republicans, along with the White House are not exactly pleased with him, and his public image may suffer as a result, as well as any support he has within the Republican Party.

Republican backlash

According to a recent article on CNN, Senator Susan Collins (R – Maine), said the issue is, “so important to senators on both sides of the aisle,” and that Bunning’s opinions “do not represent the majority of the Republican caucus.”  Another GOP senator who declined to be named said about Bunning that “This plays right into the Democratic narrative that we’re obstructionist,” and that “We look insensitive.” He also added:  “To say Bunning is not beloved is an understatement.”

More than unemployment benefits are in the provision

The emergency bill included more than just an extension of unemployment benefits and COBRA health insurance – also included were satellite TV licensing, small business loans, and also an extension of funding for highway projects, the cancellation of which could potentially lead to a furlough of federal highway inspectors, which in turn would lead to construction workers being sent home as well until the bill can be passed.  An emergency bill of this kind often requires unanimous consent (everyone must vote yes) to pass, and this bill was not intended as simply another cash advance for Wall Street.

National debt vs unemployment

Government debts and deficits are bad, as bad if not worse than unemployment.   How governments take on debt is through spending more than they make (taxes).  There is a case for borrowing during recessions.

The Roosevelt administration borrowed heavily to fund World War 2, and to curb the Great Depression, which many economists opine didn’t actually end until 1946.  Obama is simply reacting in the same fashion, but here’s the kicker – how it’s supposed to work is that debt is created to curb a recession, or fight a war, but as soon as that is done, the belt is supposed to tighten and the debt paid off as soon as things return to normal.  Right now, things are not normal – unemployment is at an all time high, which only exacerbates a recessionary period.  The three largest spending constraints on the US are known – and they are Social Security, Medicare/Medicaid, and defense spending.  All three must be curbed if we are to be serious about reforming government spending.

Update – 2/3/2010

Senator Bunning has relented, and the bill, granting the extensions, has passed.

Image from Blogspot.

The unemployment extension, passed November 5, 2009, was included in a bill with the homebuyer tax credit, and now millions of Americans can continue to collect benefits. The homebuyer tax credit was extended to 2010 in April. The unemployment extension means workers whose unemployment insurance was set to run out before the end of the year can collect benefits for an additional 14 weeks.

In states with especially high unemployment rates, the unemployment extension includes six weeks in addition to the 14-week extension. People collecting unemployment in states with rates higher than 8.5 percent will be eligible for a 20-week unemployment extension after the president signs the bill tomorrow morning.

Who is paying for the unemployment extension?

Don’t worry, you won’t have to go into tax debt because of this bill. The government isn’t taking money from tax payers just to turn around and give tax credits to those same taxpayers. The unemployment extension will be paid for the same way unemployment insurance has always been paid. That wouldn’t make any sense. CNN reports:

The proposal would be funded by extending a longstanding federal unemployment tax on employers through June 30, 2011.

How many people does the unemployment extension cover?

Nearly 2 million people collecting unemployment in the U.S. are scheduled to have their benefits expire before the end of the year. The sad thing is, if Congress had agreed on this bill sooner, 200,000 Americans could have gotten their unemployment extension, too. CNN reports:

The Senate had been bickering over the details since September, and that cost more than 200,000 people their benefits. Some 7,000 unemployed Americans run out of benefits each day, according to the National Employment Law Project.

The national unemployment rate now is 9.8 percent, the highest it has been in 26 years. Tomorrow, the day the president signs the bill, new unemployment statistics will be released. I wonder if that had anything to do with Congress finally deciding to pass the unemployment extension on November 5, 2009.