The Democrats and Republicans have come to an apparent "compromise" on the Bush tax cuts; that is, the President's words announcing the agreement sounded like a compromise: Tax cuts for the middle class to be extended permanently, while cuts for the wealthy would be extended for another two years. Unemployment benefits would be extended for another thirteen months, and other tax benefits would help stimulate the economy. Even at that, I would have preferred extending the tax cuts for the wealthy by one year, and making extending it for the second year contingent on evidence of significant job growth as a result of it.
But I understood wrong. Under the agreement, ALL tax cuts would be extend for two years--that includes the middle class cuts. And unless businesses are going to plow profits during the next two years into middle class salaries and wages the way they did for upper-income tax payers during the past thirty years, the middle class will be no better able to fit such cuts into their budgets in two years than they are now.
There are, however, two good things about this agreement: (1) Extension of tax cuts for the wealthy for two years still gives the present congress and the President control over further extensions for them and (2) middle-class voters will again have a chance in November 2012 to realize and rectify their mistake, and return Democrats to a majority status sufficient to make middle class cuts permanent.
But I still don't see any figures made public showing how much the taxes at various income levels of the middle class would increase if the tax cuts expired. They should have been announced continuously before the last Nov. elections and certainly should be publicize now and for the next two years if this agreement prevails.
Faced with the reality of this agreement, I have to rate it more capitulation than compromise. With Republicans willing to hold the middle class hostage to demands of the rich, the President had to capitulate by taking what Republicans were willing to give him. There are Democrats who say the President and Democrats should refused this compromise and fight. But most of these people likely can afford to have their taxes increased.
It remains to be seen whether senate democrats will hold out for a better agreement (or a real compromise). They could demand that the middle-class tax cuts be made permanent. Such a stand would assume that middle-class tax payers could (or were willing to) take a tax hit, and whether the unemployed could (or were willing to) go another two years without further unemployment relief. If there were sufficient jobs created during the next two years despite increased taxes, then the need for unemployment benefits would be less. But that would be up to the business community.
This is the kind of quagmire which the people chose on November 2. The middle class voted against itself. Many of those who are unemployed blamed Democrats for their condition and voted for Republican, and many middle-class workers, not realizing that they were offering themselves to be hostages for the enrichment of the wealthy, did likewise.
While voters obviously did not understand the consequences of their votes, Democrats did--or should have. I heard very little from the party, warning middle-class voters what would happen to their taxes if Republican gained sufficient strength in Congress. The dilemma that we face now was predictable when the idea of extending tax cuts for only the middle class was first conceived..
But even if all of the tax cuts are extended, we may be no better able to effect job growth and economic recovery than we are now. Why? Because instead of the middle class and borderline rich continuing to spend tax savings that stimulate job creation, they may decide to start saving because of the chance their taxes will increase in two years.
Capitalism requires that risk be taken and shared by all participants in the economic system: consumers, corporations, insurances companies, banks--everybody. But just as businesses are claiming uncertainty as a basis for not employing more workers now, won't there be the same uncertainty during the next two years as they prepare for the uncertainty about what will happen in next two years, and couldn't that uncertainty continue to offer the same reasons for businesses not to hire during future extensions?
Ultimate, there seem to be only two endings possible for the tax-cut dilemma facing present-day Democrats and Republicans: All tax cuts will eventually either be made permanent or all of them will expire. Letting taxes expire not only would be devastating to many members of the middle class, but it hinders the economic recovery by keeping businesses afraid to hire, and middle-income and borderline rich people, afraid to spend. Making the tax cuts permanent, together with compromise spending, will deepen the hole of the federal debt, all with no strategy for long-term debt reduction and economic recovery. Either way, however, it's heads the wealthy wins, tails the middle class and working poor lose.
We will be borrowing to put in the pockets of the wealthy money that will be paid back through the sacrifices of everybody else. No wonder the Republicans leaders are smiling.
Ronald
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