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Compromise to stop the so-called ‘fiscal cliff’ no victory for working class

By Fight Back! Editors |
January 3, 2013
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On January 1, the U.S. House of Representatives voted 257-167 to pass the Senate compromise tax bill to stop the so-called "fiscal cliff" of tax increases and spending cuts. While Democratic politicians are portraying this deal as a victory as “98% of Americans will not see their taxes increase,” the reality is that 77% of Americans, including about two-thirds of the working class, will see tax increases.

This is because President Obama and the Democrats did not fight to stop the increase in payroll taxes that is levied on wages and salaries below $113,700. Most lower income workers pay more in payroll taxes than income taxes, and will see their take-home pay fall by more than 2% this year. This is an increase in a regressive tax, that is, one that falls more heavily on low and middle income workers, since the payroll tax does not cover interest, dividends and capital gains that mainly go to the rich.

While the compromise did continue federal extended unemployment insurance (called the Emergency Unemployment Compensation or EUC) for jobless workers who continue to look for work for more than six months, and extended the Earned Income Tax Credit (EITC), the child tax credit, and education tax credit, which mainly help the working class, these extensions were all temporary.

In contrast, higher income households and the rich got permanent extension of the Bush tax cuts for individuals making up to $400,000 ($450,000 for couples), a permanent inflation fix for the Alternative Minimum Tax (or AMT), which mainly helps households between $200,000 and $500,000 in income and a permanent increase in the lower limit for estate taxes to $5 million in wealth.

In addition to cutting the income of working class households, the increase in the payroll taxes will also chop more than half a percentage point from economic growth, according to mainstream economists. With economic growth over the last year at a moderate rate of 2.6%, this will mean slower growth and higher unemployment (which is still at 7.7% nationally and much higher in many areas) this coming year. In comparison, the tax increases on the rich are only projected to slow the economy by 0.15%, or about a quarter as much.

Last, it is now a fact that there never was a ‘fiscal cliff,’ since the country went past the deadline and the economy did not collapse. In fact the stock market, which usually rewards companies for laying off thousands of workers, applauded the compromise, with the Dow Jones rising more than 300 points after hearing news that the House passed the Senate compromise bill. The whole idea of calling the tax increases and spending cuts a “cliff” was designed to scare working people into accepting more taxes on themselves and even accept cuts to Social Security and Medicare.

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