The big tax compromise.
Here is what happened, in clear terms. President Obama was faced with having tax rates for those making under $250,000 go up along with the rates for those making more (much more) as the tax cuts put in place temporarily by President Bush were due to expire December 31, 2010. At the same time, tax breaks put in by Obama for college tuition and small businesses were set to expire as well. At the same time unemployment benefits for about 2,000,000 unemployed Americans were set to end December 1st, 2010. Obama wanted to keep the tax cut for less than $250,000 earners and eliminate the tax cut for wealthy Americans (over $250,000). He wanted to extend unemployment benefits as for most those 2 million people that was the only income they had. That was what was keeping food on their table and a place to live. Republicans in the House and Senate insisted on keeping the tax cuts for everyone (meaning the rich, since everyone agreed to keep them for the middle class). The Republicans said that basically this was a must if anything was going to pass. Obama gave up 2 years of tax cuts for the wealthy to get the other things he wanted. That was the compromise. Many Obama supporters and many Democrats felt that Obama caved. This is not true. He got what he could under the circumstances. He could have fought with the Republicans and played chicken to see who would blink first, but that could take months and would mean the 2 million needing immediate help would not get it while the politicians played. He was not willing to do that. So, the rich get theirs (which is a lot) and Obama saved a lot of people who probably don't even know it and who probably voted Republican.
So what is the big deal about the wealthy getting a tax break?
One estimate is that with the tax cuts being extended to include wealthy folks, is that they will reap a $46,000 tax savings for each one million dollars of income. If you make $10, 000, 000, you can multiply that by 10 for about a half million dollars of extra money due to this tax break supplied by Republicans. Estimates also put this at a total of $60,000,000,000 that the US Treasury will not have coming in. These are the same Republicans that said that they could not in good conscious extend unemployment benefits since the Democrats did not figure out how to pay for that extension. They did not seem to worry about where the money would come from to pay for the tax cut for the wealthy.
What is the impact on the economy by these moves?
The people getting the unemployment benefits will spend that money immediately, putting that money into the economy immediately. The rich, it was pointed out by a Republican, will have the money to buy a nice, new car. (if they want a new one) or to invest in securities that could be eventually lent out to someone wanting to buy a house. The first of these grows the economy from the ground up. The second, seems to be along the lines of trickle down economics.
Why would the Republicans want to reward the rich? The Republican party blew away the records for bringing in donations for their candidates. The largest amount came in the form of unidentified contributors to third party organizations that sprang up overnight and did not have to follow any reporting rules as to who gave or how much they gave to these groups. You saw these groups this past election season pushing attack ads. They got life as the Supreme Court ruled this past summer that campaign finance laws set up to regulate these groups were illegal.
The best government money can buy.
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