The Deal and the Working Poor

Since it’s gotten relatively little attention as compared to the impact on people with taxable income over $250k, let’s give a brief look to the impact of the tax bill on the working people at the other end of the income scale.

Like everyone else, lower-income taxpayers would have taken something of a hit had the Bush tax cuts been canceled entirely, particularly those with income in the bottom marginal rate bracket of 10%, which would have vanished, exposing all income to a 15% rate (which could have cut into refundable amounts made available via the EITC and child tax credits). But that would happen only in the incredibly unlikely scenario of no future action to mitigate the repeal of the Bush rates.

To his great credit, the president insisted on including a five-year extension of the enhanced EITC and child tax credits, plus liberalized subsidies for college tuition costs, created by the 2009 stimulus legislation. This extension benefitted about 27 million Americans, and just as importantly, repulsed growing conservative sentiment to kill these provisions altogether as a form of “welfare.”

But for many low-income working folk, the apparently bipartisan decision to let the 2010 payroll tax “holiday” (2 percent of wages) expire will offset these benefits, not to mention taking lower payroll taxes off the table for the foreseeable future. Perhaps that was inevitable, but I’d like to have seen the White House and congressional Democrats make a lot more noise about it, particularly given the claims the whole tax bill was designed to avoid increased taxes on “the middle class.”

Beyond the tax bill, it’s important to recall that the White House and congressional Democrats did succeed in 2011 in insulating Medicaid and most low-income “safety net” programs (plus Medicare benefits) from the scheduled “sequester” of appropriations that was delayed for two months in the tax agreement. That is not to say, however, that Republicans will go after such programs hammer-and-tong in negotiations to cancel the sequester altogether, along with increasing the debt limit.

Considering what might well have happened to federal policies affecting the working poor in a Republican-controlled Congress with Mitt Romney in the White House–which would at this point in the calendar have been laying its final plans for a reconciliation-enabled cramdown of the Ryan Budget, including provisions designed to destroy implementation of Obamacare–the situation is highly benign, but needless to say, also highly fragile.

Ed Kilgore

Ed Kilgore, a Monthly contributing editor, is a columnist for the Daily Intelligencer, New York magazine’s politics blog, and the managing editor for the Democratic Strategist.