San José, CA – Early New Year’s Day, the U.S. Senate voted 89-8 to pass a compromise bill to put off the so-called ‘fiscal cliff.’ The bill now goes to the House of Representatives, where Republicans are likely to try to get even more tax breaks for the rich.

One of the few good parts to the bill is that it will continue the federal unemployment insurance for the long-term jobless for another year. There are about 2 million workers collecting benefits under the Emergency Unemployment Compensation (EUC) program. All of them would be immediately cut off this week if a bill extending the benefits is not signed into law.

Other benefits of the compromise for poor and working people are an extension of the Earned Income Tax Credit (EITC), a child tax credit and credits for college tuition. These credits were expanded or started in 2009 in response to the economic crisis and will continue for five years.

On the other hand, working people face an immediate tax hike because the payroll tax cut will expire. Most workers getting a paycheck will see their FICA payroll taxes (which go to pay for Social Security) rise by 2%, from 4.2% to 6.2%. This will affect 160 million working people, raising their taxes by about $125 billion in the coming year. This tax increase will have less effect on the rich, as the FICA is only collected from paychecks and not from investment income, and only on the first $113,700 earned.

The compromise also locks in the Bush-era income tax cuts for everyone earning less than $400,000 ($450,000 for a household). The Bush cut in taxes on interest, dividends and capital gains will also continue for these individuals and households. There is a permanent ‘fix’ for the Alternative Minimum Tax, which mainly benefits households earning $200,000 to $500,000 a year. A cut in Medicare reimbursement rates for doctors is delayed a year. The lower limit on taxing estates goes from $1 million before the Bush tax cuts to $5 million under the compromise. A number of business tax credits were also extended.

In addition, the compromise puts off the automatic, across the board spending cuts designed to reduce the federal government’s budget deficit by two months. However, the compromise does nothing about raising the federal government’s debt limit, which will force massive cuts in spending in about two months if nothing is done.

#SanJoséCA #Unemployment #crisisOfCapitalism #taxCuts #ExtendedUnemploymentCompensation #fiscalCliff

The federal government is on course for large spending cuts and tax increases starting January of 2013. This comes from a combination of three things: the end of some of the Obama administration stimulus that began in 2009; the end of large tax cuts, especially for the wealthy, done under the Bush administration; and automatic spending cuts designed to reduce the federal budget deficit. While some of the tax increases would not fully take effect until April 2014, and others could be reversed, the right wing is using fears of a ‘fiscal cliff’ to try to extend tax cuts for the rich and block planned cutbacks in military spending.

The largest immediate impact will be felt by jobless workers, as the federal Emergency Unemployment Compensation (EUC) program will close down in January unless Congress extends funding. The EUC provides an additional year of Unemployment Insurance (UI) benefits after the state UI is used up at the end of six months. There are now about 2.5 million unemployed people collecting EUC who will lose their benefits if Congress doesn’t act. The other federal UI program, Extended Benefits (EB), has already been shut down in a compromise with the Republicans, dropping 500,000 jobless workers from Unemployment Insurance.

The other group facing an immediate impact is low and middle-income workers, who will see their Social Security payroll tax rate rise from 4.2% to 6.2% when the 2% tax cut ends in January. This tax cut began with the American Recovery and Reinvestment Act (ARRA) (the Obama administration stimulus program that started in February 2009). There will be an immediate increase in the FICA withholding from workers’ paychecks in January 2013, reducing workers’ take home pay by 2%. FICA is the payroll tax that pays for Social Security and Medicare.

The impact of the end of the Bush-era tax cuts will take a longer period of time. The end of income tax cuts will depend on when the IRS issues new withholding rules. The higher taxes would be refunded in 2013 when people file their income taxes if some or all of the tax cuts are extended. In contrast, there is no mechanism and almost no chance that unemployed workers or low and middle-income workers will see any retroactive benefits or refunded payroll taxes if these programs are extended after the beginning of the year.

The end of other Bush tax cuts for stock dividends and reductions in the estate tax would be felt later since these taxes are not withheld. The Alternative Minimum Tax (AMT) would also cover more high-income (but not rich) households earning $200,000 to $500,000 per year, but this would not kick in until they file their 2013 tax returns in 2014. In fact, the AMT has been regularly cut back mid-year in previous years.

In addition to these planned tax increases, the failure of Congress to come up with spending cuts means that automatic cuts will start in 2013; half coming from the military, and the other half coming from other spending (except for Social Security, Medicare, and Medicaid). Cuts in domestic spending such as education and food stamps will be felt faster, while the military cuts will take longer.

The media and the right-wing have been calling these tax increases and budget cuts a ‘fiscal cliff’ to scare people into supporting extension of tax cuts for the rich and restoring spending on the military. While it is true that if all the spending cuts and tax increases continue for a number of months that the economy will fall back into a recession, there is no ‘cliff’ that the economy will fall off in January.

The only cliff will be for the millions of unemployed collecting federal Extended Unemployment Insurance benefits who will be cut off unless the EUC program is renewed. For working people and their allies, this is the most immediate fight: to renew and expand federal Unemployment Insurance benefits. There are more than 5 million people who have been out of work for more than six months, making up more than 40% of all unemployed workers. Half of these jobless workers are not collecting unemployment insurance benefits already. This group would be the hardest hit but is getting the least attention by the mainstream media.

Another fight for us to wage is to renew the payroll tax cut that mainly goes to low and middle income workers. Even better would be to return to the original Obama stimulus tax cut, which would also benefit the teachers and some other government workers who are not covered by Social Security and the self-employed who also pay Social Security taxes but not FICA.

An additional battle we have is the effort to extend the tax cuts for low and middle-income households, while letting the Bush tax cuts expire for higher incomes, dividends and the estate tax. Over the last 30 years, the rich have gotten richer and the poor poorer and more and more workers are just surviving paycheck to paycheck. The rich can afford to pay and should pay more.

Finally, we have to join the effort to stop spending cuts on domestic programs, such as education and food stamps, but to make even greater cuts in military spending. This effort will face stiff opposition from Republicans and some Democrats, who want the opposite: more military spending while cutting food stamps (which the Republicans in Congress recently voted to do).

While the Obama administration is ‘talking the talk’ on many of these points, we cannot rely on a Democratic victory in November to win these goals. Just look at what Obama promised working people in 2008: expanding voting rights for workers trying to unionize, immigration reform and universal health care. Card Check to unionize? Didn’t even try. Immigration reform? No legislation drafted, and in 2012 Obama gives temporary status to undocumented who came as children. He could have done this in 2009, but instead deported record numbers of immigrants. Universal health care? Obama’s reform will subsidize private insurers and expand Medicaid (which pays so little that many doctors won’t accept it) and still leaves millions without health insurance.

We need to continue to build a grassroots movement to fight against putting the burden of austerity on poor and working people for 2012 and beyond.

#UnitedStates #taxCuts #Capitalism #FederalUnemploymentInsurance #EmergencyUnemploymentCompensation #fiscalCliff

San Jose, CA – When the price of gasoline spiked above $3 per gallon, Republicans responded by proposing a $100 rebate. This was widely condemned as a public relations stunt at best and an insult at worst as working families are weighed down by high gas prices, rising interest rates and cuts in pensions and health care. But you don’t hear complaints about the Republicans coming from the rich.

Why should they? Republicans in the House of Representatives and the Senate have given them another tax cut, by extending the lower taxes on stock dividends and capital gains for another two years (2009 and 2010). This will mainly benefit those making more than $200,000 a year, the group that receives about half of all stock dividends and three-quarters of all capital gains. The average taxpayer, making $36,000 a year, will get their taxes cut by an average of $20 per year, and only one-fifth will see any tax cut at all. However wealthy taxpayer making $5 million a year will receive a tax cut of $84,000!

The Republican tax cut also limits the Alternative Minimum Tax (AMT) for another year. The AMT was originally passed after people found out that some wealthy individuals were not paying any federal income taxes at all because of all the loopholes favoring the rich. Because the AMT is not adjusted for inflation, more and more high-income, but not wealthy, families have been affected. Taxpayers earning $100,000 to $500,000 will get almost all the benefit from the AMT fix. However, rather than adjusting the AMT for inflation, Bush and the Republicans use the AMT issue as a way to cut taxes for the rich every year.

Even worse, this latest tax cut contains a sneaky provision that raises about $6 billion in tax revenue over the next five years, but then gives individuals earning more than $100,000 a year $100 billion in tax cuts over the following 35 years. This loophole will allow these high-income families to use Roth IRAs that protect their income from future taxes.

Not only are the Bush tax cuts grossly unfair, but they also raise the possibility of a financial crisis in the future. The growing federal budget deficits caused by the tax cuts and the occupation of Iraq have been mainly paid for by selling government bonds to foreigners, who now own almost half of all bonds held by the public. In fiscal year 2005, foreign investors and central banks bought bonds equal to 70% of the federal government’s budget deficit. When (not if) foreign investors and governments decide not to buy so many U.S. government bonds, this could lead to higher interest rates and a falling dollar, which could lead to higher inflation and unemployment at the same time. Such a crisis would hit working people who are living paycheck to paycheck the hardest. At the same time the government budget deficit would grow even larger due to lower tax payments, and this would be an excuse to try to cut the so-called safety net even more.

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