Tim Geithner led an Administration effort yesterday to publicize in glowing terms the tax cut deal passed by Congress and signed by the President during the lame duck session in December. Concurrently, they sent out a fact sheet with some similar statistics that Geithner described in a press briefing. He claims that 159 million workers will benefit from the payroll tax cut, and there’s no reason to doubt him on that point. But the analysis suffers from a major sin of omission.
Geithner said that the payroll tax cut, totaling about $110 billion according to new estimates, will lead to an increase in take-home pay for the average worker by about $700 a year, and for the average working family about $1,000 a year. It’s important for him to use those numbers, because they are greater than the $400 per individual, $800 per family Making Work Pay tax cut which this payroll tax cut essentially replaces for 2011. The difference comes in how those taxes get calculated and where they phase out.
Making Work Pay was a flat $400 for every worker, but the benefit phased out for workers making over roughly $95,000 a year. That meant it was targeted directly to people who would spend it and offered a pretty nice benefit. By contrast, the payroll tax cut applies to every worker in America, as Geithner says. Bill Gates will get a payroll tax cut. Alex Rodriguez will get a payroll tax cut. Paris Hilton will get a payroll tax cut. Because the payroll tax itself caps out currently at $106,800, the tax cut for Gates, Rodriguez, Hilton and anyone else making that number is $2,136. But that’s $2,136 more than they got under Making Work Pay. I’ll leave it toy you to determine whether that’s something they need, and something which will work to stimulate the economy.
By contrast, at the low end of the scale, the “benefit” from the payroll tax cut ends up worse than the benefit from Making Work Pay. Making Work Pay was a flat benefit of $400; with the payroll tax cut it’s a percentage of income. So any individual making under $20,000 a year or family making under $40,000 a year will see less of a benefit under the payroll tax cut. That comes out to roughly 50 million workers, or close to 1 in 3, using Geithner’s numbers.
So you have this crazy circumstance where the payroll tax cut ends up a worse deal for low-income workers, who would spend the money, and a better deal for high-income workers, who probably won’t.
It’s true that the payroll tax cut comes out to $110 billion in tax relief for 2011, roughly $50 million more than Making Work Pay on an annual basis. But it’s woefully targeted. And the phony use of “average tax cut” promulgated by Geithner belies the fact that it’s a worse deal for 1 in 3 workers. Similarly, all the examples on the fact sheet are careful to use people making over $20,000 a year, to avoid the embarrassment of admitting that the deal raised taxes for those under that threshold.
I’m sure Geithner and the Administration would reply that it’s unfair to compare the payroll tax cut with Making Work Pay, because Making Work Pay was expiring. Well, so were the Bush tax cuts. And yet they were characterized as needing to be extended to avoid a tax increase. Under their own logic, the payroll tax cut effectuated a tax increase for 50 million workers.
What’s more, I’m sure the White House would look toward all the other wonderful provisions in the deal. Most of them, they’d have to admit, extend current law from 2010 into 2011 and 2012. Geithner was sure to mention the bonus depreciation for new capital investment, which gets accelerated in the bill from current law. But that’s a very lonely provision that represents something different from 2010, a time of sluggish growth.
The Administration and leading economists are sticking to their predictions that the economy will grow 3-4% in 2011, and that this package, in the words of Geithner, will add at least 1.5 million jobs. So far, economic indicators are decidedly mixed on that front. But I wish they would acknowledge all the facts of the payroll tax cut part of the deal, which is a raw one for the working poor.




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The payroll tax cut does not apply to every worker in America. I am a Colorado state employee. I do not pay into Social Security, so the payroll tax cut does not apply to me. My taxes are going up rather than down because the Bush cuts didn’t do a damned thing for me. In fact my income has already gone down, because us evil public employees have to pay more into our pensions. In addition, I did pay into Social Security for over 20 years, and I expect this payroll tax cut will decrease the small benefit I will have coming when I do retire.
My mother is 80 years old, payroll tax cut doesn’t help her, but the coming benefits cut will alost certainly harm her. The lack of a cost of living increase will hurt her. And the crap about how the cost of living hasn’t gone up is a lie. Maybe widescreen tvs are cheaper, but my mom doesn’t eat tvs. Food has gone up a lot and so has fuel. My brother is a disabled veteran. Payroll tax cut will not affect his pay, but his taxes will probably go up. My daughter is a college student with a very low income. Payroll tax cut will give her about $10 per month. She got $400 last year.
This is hogwash and anyone with half a brain will figure that out on April 15, it is not going to help most of us as much as what they dropeed, and they knew it But is was a Republican idea, so of course Obama loves it. I guess Obama is hoping no one looks at the tax bill and what’s left in their pocket.
end of 3rd paragraph. /typo police.
On a substantive basis, do you think these guys stat up late to figure out how to screw the little guy, or does it just come naturally.
Great work, David.
Is it possible for the Wise Ones at the Lake to put together some sort of chart — similar to the one that was done on the health care bill — showing, in column 1, the claims of the Administration, and in column 2 the truth.
I found the health care chart especially useful when I needed to refute a comment on another blog, compose a letter to the editor, or just engage in a discussion with a “believer.”
I haven’t read a single article about the payroll tax cut in the tax deal that talks about the cut in matching funds that corporations pay. Why? Are corporations still paying the same amount in to FICA or was this whole thing really about getting, yet another, tax cut for wealthy corporations?
The cut being, this time, the ability to not pay matching funds on the percentage the employee no longer pays.
My probs with O believers is the ‘hortatory’ phenomenon. He “should do this.” He “should do that.”
Then I ask any number of Qs, like “why do you suppose he doesn’t.”
Which results in more hortatories.
We all know what “should” be done. In economics, it’s black letter (IANAL, but as I understand the term, it means has been used in prior cases enuf to mean unchallengeable.)
Yet not only is none of this done, the dialogue & action keep moving farther & farther away from black letter.
Excellent point! I’ve ‘missed’ that too.
Oh, and while we’re at it, and the thread is slow, let me point out that Geithner is too skinny to have a chest to thump.
I am just wondering who is going to run for president on the democratic platform? these guys are all repugs,,,
Geitner needs to be put under oath and shown to the public for who he really is, a tool of wall street, I’m actually hoping Issa does his job at this point,, we have been fooled
Let the hortatories begin.
I’d go a step further and say he needs to be removed from office.
But then, they will tell me to remember civility. Let’s not get loud and call them out on their stuff. Nooooooooo. That would be calling out the wolf in sheep’s clothing.
This is also a backdoor effort to do destroy the current viability of Social Security. As is stands right now, Social Security is solvent until around 2039, according to Dean Baker and Mark Weisbrot. That’s assuming nothing changes. Reducing the amount going into the fund, probably from both employees and employers, is going to affect viability of the fund.
Who’s foolish enough to believe that when it comes time for this “tax holiday” to expire, it actually will. Again, we’ll hear the weeping and gnashing of teeth that goes along with anything that can be fashioned to sound or look like a tax increase.
Thanks, Democrats. I will not stop pointing out that had Pelosi allowed impeachment investigations from 2007 on, this wouldn’t be happening and no one would be thinking of what’s gonna happen when Jebbie decides to run for president. The Bush family name would have been anathema instead of smelling only less than Obama.
The Ds synonym for surrender.
Yep. Biden’s new staff member tells me we all are in trouble. There will be no mercy now.
The rich are more likely to use their tax cuts to invest in emerging economies/outsourcing. Poor Americans are less likely to invest more likely to buy stuff made here.
I predict this tax will hurt our economy…yes I state the obvious:)
Good facts I wonder if Geithner even considered them when he made up these numbers?
Seconded!
I’m hoping Americans will buy made in America or farmed in America. Local economic model.
There is not going to be a Progressive Dem up for election unless we put one there.
I think we have to develop a Progressive National Comm., A Progressive Leadership Comm., and all sorts of think tanks just as they have.
Dude we are it:)
It’s even worse than it appears because the lowest income households typically have a single wage earner. On the other hand, the highest income households average more than two wage earners. (Don’t ask me how that’s possible. I guess they put Junior on the payroll.)
And as Apishapa pointed out at #1 Safe Harbor employees see no benefit. (The Safe Harbor program needs to be eliminated, but that’s another story.)
LOL! I know. I meant officially, with money backing. I guess we can dream, though.
Tim Geithner loves the rich and disdains the poor… Those family’s under 40K and singles will see an increase in taxes.. Really great negotiating with the pukes who once again dupe the Dems to give the rich a pay raise… stupid fucks.. and who looses as always???
I don’t think they duped anybody in Dem congress. I think they just put on a show for us.
My bold it will and we need numbers how much this tax cut hurts SS for when Obama tries to cut it. Any idea when Obama will announce SS cuts he needs to do it soon before people start talking Presidential politics and by this time four years ago we had how many GOPers already announce they were running for President?
None of the GOPers want the job or are they to afraid of Sarah I’m not sure which or if both are factors in GOPers not announcing they are running for President.
Without a ground game in Iowa and New Hampshire can GOP no names with lots of money win with a late start?
Can Jeb overcome his brothers legacy in a rushed GOP Primary without getting to know the voters of both states?
Iowa and New Hampshire voters expect to meet the candidates.
Howard Dean might see it our way but he needs to get control of the party again. Just who is calling shots well really calling shots for the Dems now?
I assume after the election some DNC heads rolled.
It does seem strange that there are no announcements doesn’t it? I keep hearing Huckabee, and even Alec Baldwin.
America is not ready for another Bush Prince.
prolly right.. they sure have screwed the pooch in my book… but hey the pukes ARE even worse… the dems just cave way too easy and early, that is if they actually care and are not bought…
Maybe Soros can pay us we come up with better ideas than the Dems or GOP and the Healthcare town halls showed we can bring crowds second to what the Unions bring.
I wish! I think he is more of the “centrist type” though. I can’t be for sure, just guessing.
The GOP seems to be anyone but Sarah but she is the only GOPer who can make news now. America might ot be ready for Jeb but I think he still will run and that means Karl is back in the game even if he hides in the shadows.
But much like Rahm if its a dirty, sleazy untrue rumor or leak and its from the GOP side its probably Karl.
If its a Socialist, Terrorist, Gay,Racial or sex rumor its probably Karl.
Yep. Hate and Anger, it’s all they got.
Is their any difference between Geithner and Bush’s handling of the economy much less economic ideas?
To be fair thats all Rahm gots too! I can’t believe he might be Chicago’s next mayor.
Today I parked behind a car with an Obama sticker on its bumper, and it gave me an idea for one I think I’ll have made up:
Peterr is upstairs!
DOD Wonders if MLK Would Understand Today’s Wars?
Just more O’bullshit to paper over the fact that DEMOCRATS are DEFUNDING Social Security, and handing the bulk of the ‘savings’ to those who don’t just not need it the least, they don’t fucking need it at all, at the expense of those for whom that 2,136 dollars would be the difference between heating their house or driving their car, or not.
Yay progress! Thanks Timmy and Barry.
Obama, a Black man and a Democrat, was chosen as the vehicle to drive Social Security off the cliff thereby reducing Americans to the same level of impoverishment as workers in other third world countries.
The thing we have to beware of is the GOP repudiating the US debt. That happens and there goes the credit worthiness of the paper in the trust fund that was meant to cover for the funds withdrawn for other purposes. The only thing that might stop them is the effect that would have on the dollar but at this point they don’t seem to care.
Barack Obama is a con man and Tim Geithner is a crook. The sooner we are rid of them the better. The latest plan to defund Social Security to destabilize it and create a necessity to severely reduce the benefits or have it run out of money is standard Obama 100% high octane sleaze.
They’re both so crooked that when they die, the funeral people are going to have to screw them into the ground.
Anyone who thinks the economy is going to get better for Main Street with them running the show hasn’t been paying attention.
In 2012 the only choices we have are a DINO (democrat in name only) and a republican. (Though maybe a republican would be better in light of the expansion of the war in Afghanistan, defunding of social security, etc. etc. etc.)
This means 16 years of Bush policies regardless of who wins. To have a chance for our country in 2016 Obama has to be defeated in 2012. Otherwise the democrats will be doing what they are now and lecturing the rest of us we have no choice but to vote for an for an Obama-type who loves to cave to the republicans. They will say once again the republicans are even worse, though in fact Obama has not shown himself to be better than the republicans in any major significant way. If Obama is defeated in 2012, however, perhaps the democrats will realize they have to do something different.
The question is if we will remember his actions and have the courage not to vote for him in 2012 for the long term best interests of our country. For me it would be worth it not to hear the whine, “I am only the President of the United States, a helpless victim.” At least Bush never did that.
Geithner consider facts? Actually, you already answered that question in the latter part of your question.
If they are weakening Social Security, then my discretionary spending just went to zero. No new clothes. No car loans. $3 a day for food. No DVD rentals or purchases. No movies. no barbershop hair cuts, etc. To hell with them. I’ll take the ‘tax holiday’ and double it and put it in the 401-K. Cuts my taxes and revenues to Uncle Sam too.
How can you tell when Timothy Geithner is lying…
Obama must be defeated. Bush’s policies are ruining the country and all Obama is doing is continuing them so that Democrats will share the blame for the looming catastrophe. If the country is going to hell in a handbasket, it would be much better to have a Republican in the White House when it happens.
Personally, I would not vote for Obama if he were running against Sara Palin. I’m most likely to vote for a write-in candidate.
You got that right.
Absolutely will not vote for Obama again–win, lose, or draw, it’s third party all the way at the national level (I love my democratic state senator and state rep).
The only thing interesting I see coming up in this next election is the rhetorical lengths to which Obama will go to portray himself as a “real democrat” who fights for the little guys and gals. That ought to be a hoot.
Good idea, I want one too!
Let’s assume that the people actually running the Democratic Party are on Wall Street. Kaine is simply a front for whoever is going to bankroll Obama’s re-election campaign.
I wish that The talented Mr. Geithner and talented GOP Actor Obama were not PNAC-GOP tools of looting.
But they simply are GOP Fox Teaparty tools.
Saddest are liberal-progressives self-denying that bedrock fact despite ALL objective evidence, acts, policies and the non-existent middle-class. It’s only theater. The Democratic Party is GOP’s corporate servant.
Party Dems are “The Good Cop” in the theater scripted by corporate PNAC-GOP’s “New Amercian Century” textbook terrorists. The Democratic Party’s job is creating the illusion of a choice for middle class survivors with Geithners-Obama’s merciful final shots to their heads.
Fighting over the disappearing crumbs is The Democratic Party’s scripted role: Theater
Follow the deficit fiat cash to China and India-your billionaire PNAC-GOP-DEM new frontier….and to oil war opportunity zones (Iraq and next Iran…mideeast Likud’s Goldman, Citi, BOA new war colonies)
Arguments over the crumbs on the floor shall accellearte on-schedule apace. And of course vote Democrat. haha
considering that: (1) based upon the DNC’s total ineptitude during the 2010 mid-terms in framing the campaign issues (health care reform is the best thing since sliced bread, yea!!…and don’t let the Repubs drive us back into the ditch again, I mean WTF?!?, and (2) a Dem majority Congress and President for 2 years did exactly jack and shit about 10% and higher unemployment, and (3) Obama and his inner circle punched every hippie they could find in the days and weeks before the election,
I would have to conclude the DNC and Obama either: (1) got the result they wanted all along – which is a repub dominated House of Representatives, or (2) they’re having issues with the eleven dimensional chess thing.
Besides I haven’t heard of Tim Kaine being replaced at the DNC. Gibbs and Rahmbo were due out anyway.