Tax deal misses opportunities to boost employment, fairness
While debate continues over an extension of Bush-era tax cuts, other ideas in a proposed White House compromise deal are designed to help stimulate economic growth. More could have been done, however, to create a plan that not only nurses the fragile economy and promotes job growth, but also increases fairness.
That win-win opportunity involves letting tax rates return to Clinton-era levels for only those making $1 million or more. Over the weekend, this idea was rejected in a Senate vote, but it should be reconsidered. The additional tax revenue could be used to fund a temporary tax credit for any company hiring someone who is unemployed.
The tentative agreement between President Barack Obama and congressional Republicans reveals a bargaining session that would allow Republicans to temporarily block any increase in tax rates and allow Democrats to extend unemployment benefits for about a year.
The agreement also includes a temporary 2 percent payroll tax cut for employees, as well as some help for college tuition and business investment incentives.
The job-growth portion of the plan could have gone further, with a return to Clinton-era tax rates for those making $1 million or more. Such a compromise would help Republicans deflect Democrats’ charges that the GOP caters to the concerns of millionaires and billionaires.
The $1 million threshold was suggested by Sen. Charles Schumer, D-N.Y., who represents a metropolitan area where couples making $250,000 a year are not considered rich.
As a candidate, Obama promised in nearly every speech to reverse the Bush tax cuts for the wealthiest Americans. His failure to keep that promise has ignited criticism from the Left.
So, a plan that raises rates for those making $1 million or more would soften attacks from liberals, and maybe earn praise from pro-business Republicans if it funded tax breaks for businesses that hire an unemployed worker.
Still, while job growth would help create some more economic demand, it’s not clear how many companies would take advantage of such a tax incentive — if they didn’t expect increased demand for their product or service.
But if a million or more people returned to the workforce through such a temporary tax credit, it would reduce the burden on unemployment benefits and also would lift consumer confidence, which could lead to more economic growth.
One of the problems that was not solved, but in fact was made worse, by the proposed deal between the White House and congressional Republicans is the temporary nature of many of the proposals.
When a tax break or other provision is designed to reduce unemployment, short-term time frames are appropriate. But in too many cases, the pending proposal adds uncertainty by setting tax rates for only two years and for making changes to estate taxes that will also last only two years.
Businesses, investors and other job creators need a stable environment for planning, but this proposal from the White House does not help reduce the uncertainty that has irked many in the business community.
Still, nudging up the cutoff for continued lower tax rates to $1 million should be an easy sell, and it avoids the debate over whether anyone living anywhere and making $250,000 is rich.
More creativity or flexibility in any further negotiations could produce a tax-rate plan and economic-stimulus package that helps lower unemployment, reduces business uncertainty and promotes a sense of fairness — while also addressing the growing economic equality gap, which is not good for the middle class, not good for America, and not even good, in the long term, at least, for the rich.