Georgia Dems split over tax compromise

Sanford Bishop

A political firestorm has erupted among Democrats since President Obama announced a deal with Republicans to extend the low Bush-era tax rates.  It seems possible that President Obama negotiated without the input of Democratic congressional leaders, expecting them to follow his lead.

Lame duck House Speaker Nancy Pelosi is unhappy with several provisions and has not committed to pushing the bill through the House.  Senate Majority Leader Harry Reid said the compromise was “something that's not done yet. We're going to have to do some more work.”  This indicates that left-wing Democrats may hold the compromise hostage (to use President Obama’s metaphor) to extract more concessions from the Republicans.

For some the rhetoric was even more heated.  Senator Mary Landrieu called the extension of tax cuts for the wealthy “morally corrupt” and “nonsensical.”  Senator Claire McCaskill said, “If they think it's okay to raise taxes for the embattled middle class because they're gonna pout if we don't give more money to millionaires, it really is time for the people of America to take up pitchforks.”  Apparently Senator McCaskill doesn’t realize that, after last month’s election, if the American people take up pitchforks, it will more than likely be to come after the Democrats.

Much of the Democratic opposition seems to stem from the perception that the deal is a new tax break for the rich or that taxes for the poor are subsidizing the wealthy.  Nothing could be further from the truth. 

In the real world, the current income tax rates, enacted during the Bush-era, are set to expire at the end of this year.  If that happens, taxes will increase for all US taxpayers.  On your first paycheck for 2011, you will take home less money than you did in 2010 because of increased withholding.  If the compromise passes, the rates will remain effective for another two years.  No one will pay a lower rate than they are already paying.

The estate (death) tax provision in the compromise is also giving many liberals heartburn.  The estate tax is set to jump to 55% from nothing this year.  The compromise would restore the estate tax at 35% for estates worth more than $5 million.  Apparently, this is not enough for many liberals.

As I pointed out yesterday, Democratic concerns about the cost of extending Bush’s tax rates are a hypocritical considering the spending spree that they have been on for the past 2-4 years.  Democratic calculations fail to incorporate Hauser’s Law, which points out that government revenue remain stable at 19% of GDP regardless of tax rates.  This is because the wealthy put their money into tax shelters when tax rates rise.  With more money removed from the economy (a higher percentage going to government and more real dollars sitting in shelters), the economy shrinks.  The higher tax rates actually bring in fewer real dollars than projected.  This means that the tax increases would bring in less revenue than projected and, conversely, that keeping rates low would cost less than projected.

Of Georgia’s six congressional Democrats, only Sanford Bishop has made a statement supporting the compromise.  A spokesman in John Lewis’ office states that Rep. Lewis is opposed to the deal, even though the favors the extension of unemployment compensation.

Two of the representatives (Hank Johnson and John Barrow) have not yet decided on an official position.  A spokesperson for Jim Marshall said that the congressman had not addressed the compromise, but supported extending the Bush tax rates.  A spokesman for David Scott refused to reveal Rep. Scott’s position on the issue.

Of the four uncommitted congressional Democrats, three (David Scott, John Barrow, and Jim Marshall) are members of the moderate Blue Dog Coalition.  John Barrow and Jim Marshall (as well as Sanford Bishop) joined forty-seven Democrats in signing a letter to Nancy Pelosi last September supporting an extension of the current tax rates.

It is likely that John Barrow and Jim Marshall will join Sanford Bishop in supporting the compromise.  It is equally likely that Hank Johnson (who gained fame for his belief that Guam might “tip over”) will join John Lewis in opposing it.  David Scott, who is a Blue Dog and represents several conservative counties, could go either way.  My prediction is that he will oppose the deal.

On the Republican side, only Senators Jim DeMint and George Voinovich have said that they will vote against the measure.  That may change in days to come as such notables as Sarah Palin and Rand Paul question the deficit spending in the deal.  Members of Georgia’s Republican delegation have not voiced opposition.

If the deal fails to pass, it is likely that the newly strengthened Republicans can engineer an extension to the current tax rates next year.  However, that would mean that people will be taking home less money in the first weeks of the new year.  It would also leave Democrats to explain to the American people why allowing taxpayers to keep their own money is considered a giveaway.

http://www.examiner.com/conservative-in-atlanta/ga-dems-split-on-tax-cut-deal"> 

Details of the tax cut compromise

Ironically, the compromise may save Obama's presidency. (Steve Jurvetson)

For many observers, the fact that the Obama Administration and congressional Republicans reached a compromise on extending the Bush tax cuts was not a surprise.  The big surprise was how quickly the agreement came.

President Obama himself has accepted the fact that when tax rates drop, the government’s tax revenues actually increase.  On the other hand, as tax rates increase the government actually takes in less money.  President Obama’s response to these facts was that tax rates should be increased for “fairness.”  Realizing the effect of low tax rates, it is unsurprising that President Obama would temporarily avert a tax increase in order to help bring the economy out of the recession. 

In spite of President Obama’s realization of the power of low tax rates, congressional Democrats complain about the cost to the government of extending the low tax rates for the wealthy.  This is a hypocritical position on two points.  First and most obvious, the Democrats object to the cost of low taxes, but they have no objection to the cost of their pet programs.  Whether it is the extension of unemployment benefits in the compromise, which will cost $56 billion, or the stimulus package, which tipped the scales at $787 billion, cost is not an object unless it applies to tax cuts.

Second, most Democrats supported extending the low tax rates for the middle and lower class, but opposed extending the low tax rates for the wealthy.  The total cost of extending the current tax rates is $383 billion.  The cost of extending the high income tax rates is $75 billion.  This means that the cost of extending the rates for the lower and middle class, at $308 billion, is far more expensive that extending the upper income tax rates.  If they were truly worried about fiscal responsibility, the Democrats would object to the entire package.

The effect of the compromise, if it passes, will likely be to help lift the economy out of the doldrums (although the temporary nature of many aspects of the plan does limit the possibilities for long-term growth).  With the knowledge that paychecks will not shrink, at least in the short term, taxpayers will have more money to spend or invest than they would have otherwise.  There are also other aspects to the deal that will help the economy such as a temporary reduction in the Social Security tax, a temporary fix for the Alternative Minimum Tax (AMT), a compromise that would restore the estate tax at a lower rate, and extensions to several tax credits.

The one aspect of the plan that may actually damage the economy is the part that is most supported by Democrats.  Many economic studies show that extending unemployment benefits may actually be linked to higher unemployment rates.  While it seems compassionate to give money to the unemployed, it actually provides them with an incentive to not seek new jobs until their benefits are about to expire.  This concept is confirmed by the “funemployed,” laid off workers who enjoy a leisurely lifestyle financed by the taxpayers.

Similarly, generous and long lasting unemployment benefits discourage workers from taking lower paying jobs.  Some jobseekers are offered jobs, but because they are receiving generous benefits, can afford to turn them down and keep seeking jobs with pay and benefits commensurate with their old jobs.  Little do they realize that jobs with the compensation they are seeking no longer exist.

Most opposition to the deal seems to be coming from the Democrats who feel betrayed by Obama’s temporary abandonment of class warfare.  Nevertheless, many Democrats were on record as supporting an extension of the low Bush-era tax rates even before the compromise.  Georgia’s three Democratic congressmen, including lame duck Jim Marshall, support the compromise.  Georgia’ Republican delegation is unlikely to oppose the deal.

Ironically, the tax cut compromise may boost the economy to the point that Obama’s approval rating recovers and his chances of re-election improve.  It will be up to Republicans to remind voters that under the Democratic agenda the economy remained stagnant.

http://www.examiner.com/conservative-in-atlanta/details-of-the-tax-cut-compromise">