Posted: 10:38 am Tuesday, December 14th, 2010
By Jamie Dupree
We have heard a lot in recent days about how the Obama-GOP tax deal will help stimulate economic growth and create new jobs in the U.S. Economy. But will it really?
I ask that question as the House prepares to vote on this plan today simply because so many people in both parties talk about the stimulative nature of this plan, that it will funnel billions into the economy.
Let’s take a look. Sorry if this gets confusing.
The package weighs in with a price tag of $857 billion. Much of that is due to the extension of the current federal income tax rates, which were given a price tag by the Congressional Budget Office of $330 billion.
Since those tax rates are already current law, it’s sort of hard to say that this provision would “stimulate” new growth. Yes, it may convince some businesses to hire, but it’s not “new” money in the pipeline overall. So that takes us down to $527 billion.
$136 billion of this plan would insure that the Alternative Minimum Tax does not reach out and grab more than 20 million taxpayers, as it would continue a “patch” for 2010 and 2011.
Again, this is more of an accounting issue, so you can’t say that this provision funnels $136 billion of new stimulus into the hands of consumers. So that takes this package down to $391 billion.
The plan also includes $22 billion in continued lower tax rates on stock dividends and capital gains. So, you can subtract that as well – since those rates are current law – so we are down to $369 billion.
Then we have the “tax extenders” which extend a series of short term tax breaks for businesses and individuals. Since they have been current law in recent years, there is no change here, which means the $52 billion involved gets subtracted as well, down to $317 billion in “new” stimulus money.
Well, there must be some stimulus from the temporary payroll tax holiday, which is estimated at $112 billion. That’s money going right into the pockets of consumers.
That is correct – except that this payroll tax holiday is intended to replace the Making Work Pay tax credit, which was in the stimulus, at a cost of $60 billion per year.
Making Work Pay was worth $120 billion over two years. The payroll tax holiday is a one-year provision that clocks in at $112 billion – so that actually does move up $52 billion into 2011. (Some “real” stimulus!)
So, take out $60 billion and you are down to $257 billion in the size of this tax plan/stimulus.
Then there is the change in the federal estate tax, which this year is at zero. This plan would bring it back to life at a lower rate than expected, but higher than this year.
Estimates are that the estate tax change would cost $68 billion – that is, it would bring in $68 billion less than current law. Is that really a stimulus? I ask that, because this year the tax is zero.
I think you can argue that you can take out the $68 billion – we are now down to $189 billion.
Still left is the extra 13 months of long term jobless benefits, worth $56 billion. Economists say that’s a great stimulus, but since it is already being paid out – can it be considered a “new” stimulus?
I’m not so sure. You might want to subtract that, which brings us to $133 billion.
What’s left? Some $77 billion in spending from the temporary extension of certain tax provisions. It’s not clear how much of that is “new” either.
If you haven’t seen the CBO estimates on the Obama-GOP deal, you can find it at http://is.gd/iFz34
I know this blog is somewhat esoteric and most likely confusing – but it may be that this Obama-GOP tax plan is not as economically stimulative as many lawmakers in both parties would like to argue.
Finally, as for the House vote today, Democrats aren’t going to offer a ton of changes to the tax agreement, even though they have been making all kinds of noise over the last week about voting this down.
The final ground rules for this debate make only one amendment in order, from Rep. Earl Pomeroy (D-ND), who has long led the charge for reform on federal estate taxes.
Pomeroy’s plan would lower the exemption from $5 million for an individual and $10 million for a couple down to $3.5/$7 million.
Also, the maximum tax rate would go up from 35% in the Obama-GOP agreement to 45%.
Democrats think they can approve that and get Republicans to agree to it in the Senate – because, remember – any changes made today in the House must be voted on again by the Senate.
Remember how I talked about all of the Democrats who screamed bloody murder about this deal, but that many of them would end up voting for it?
We’ll get to watch that today in the US House.