The Great Compromise to give tax cuts to rich people includes a poisonous sop to the middle class, a temporary payroll tax cut. It is sure to decrease the income of millions of Americans for the foreseeable future. The way it works is that for the next year, people get a 2% reduction in their FICA taxes, and the government will put a like amount into the Trust Fund.
The Obama Administration sent out a pair of Senior Administration Officials to explain the glories of the Great Compromise to bloggers, so I asked what part of the Great Compromise would not have been available if the Administration had not capitulated. The SAOs didn’t agree that they were capitulating, but they did say that they thought they would not have gotten an extension of the tax cuts in the stimulus bill, and might have not gotten an extension of unemployment benefits, and might have gotten a longer extension of the tax cuts for the rich.
I asked why employers would not just say to a new hire, well, you are getting a FICA cut, so I’ll just pay that much less. After all, that is what you would expect from a basically Republican plan. SAO explained that everyone gets the cut, not just new hires, backhandedly admitting that employers would do that to new hires. My bad for not asking a better question.
I should have asked why employers wouldn’t say: you don’t need a big raise, your FICA taxes were cut. Look how that works out. Next year, it’s raise time, and your base pay is lower because you didn’t get a decent raise this year. Your employer tells you you get a 3% raise on that lower base. Every year going forward you make less money than you would if you had this year’s whole raise. Of course, the same thing happens to new hires.
Jed Lewison of DailyKos asked why the 2% FICA cut would not become the new normal, and when it was time to end it, wouldn’t people say Obama is raising taxes? SAO thinks that is a good question. Too bad he didn’t have an answer. If the tax is reimposed in a year or two, that will be a double hit, increased taxes on reduced wages.
Oh, I almost forgot. The other SAO explained that the President is really serious about raising taxes on the rich, and will be fighting for that for the next two years.