Are Democrats Against A Middle Class Tax Cut Extension?

Senate Republicans blocked the middle class tax cut extension passed by the House earlier in the week.  There’s a lot of finger pointing by the Democrats who say that the Republicans are holding the middle class hostage.  Is that really the case though?  If the Democrats know their bill will get shot down by Republicans due to perceived inequality of only providing tax cut extensions for certain income classes, then in reality, it is the Democrats who are holding the middle class hostage for trying to keep pushing a bill which won’t get passed!  New legislation starts with the House and moves upwards until it finally hits the President’s desk to vote.

BLAMING GETS US NOWHERE

Blaming Republicans for holding the middle class hostage is like blaming a teacher for a lazy student who is failing class.   It is the responsibility of the teacher to grade fairly, however, it is a bigger responsibility for the student to turn in their best work, come to class, show respect for his or her classmates, and work hard to get a good grade.  The teacher should always be available to help the student improve, as well as teach the student about the importance of fairness.  The teacher / student relationship is that of a partnership.  Without collaboration, there is no success.

Why Democrats think it’s OK to let the budget deficit balloon by $3 trillion over 10 years by extending tax cuts for the middle class, but not for individuals making over $200,000 seems strange.  Allowing those making over $200,000 to equally participate in a tax cut extension during a nascent recovery costs “just” $700 billion.  Hence, why are the middle class more special than others?  No one group should be classified as more special than another group.

Everything is rational, which means that deep down, American people, including the President and Democrats believe that discrimination based on income is wrong.  As a result, there is absolutely no doubt in my mind that tax rates will stay at current levels in 2011 and beyond for ALL Americans.  Let the Republicans therefore agree to extend unemployment benefits another 52 weeks for those who’ve already had 99 weeks of benefits.  141 weeks of unemployment benefits is still much less than the 260 weeks of unemployment benefits suggested!

Readers, since Democrats in the House realize that their tax cut extension bill will get rejected by the Senate, do you believe that Democrats are in fact the ones who are keeping the middle class hostage?  Do you believe taxes will increase or stay the same in 2011?

UPDATE: Thank you President Obama and Tim Geithner for reading this post and realizing it’s important to compromise!President Obama and Congressional Republicans hammered home a two-year tax cut extension and extension of unemployment benefits for 13 months on Monday, Dec 6th!  We all should be proud of the compromise our leaders have made!

Regards,

Sam

PS I am neither a Democrat nor a Republican.  Politics seriously just get my goat and I dislike all politics equally.  I’m just an American who believes everybody should be treated equally.

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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Comments

  1. Kevin says

    I think it will stay the same because the democrats will put a bill forward that will include all of the tax cuts. However, I don’t agree with your analogy of turning a paper in. It’s not a student teacher system, it’s a partnership. The problem is that democrats and republicans can’t be partners because they are starting to be too extreme opposites. I would say that the democrats bend more than the republicans when it comes to passing bills, so in reality the republicans are holding the middle class hostage because unless the democrats bend to what the republicans want then the republicans won’t vote at all for other bills the democrats want like unemployment benefits and the like.

    • Financial Samurai says

      But since the Democrats know their bill won’t pass, aren’t they holding the middle class hostage for not coming to a compromise? As a result, I believe the Democrats DO end up compromising in the end to make their bill more equal to affect more Americans.

      Is a student and teacher not a symbiotic partnership for educational progress?

      • Mark says

        I agree with Kevin on this one. There has to be some compromise and the Republicans have been unwilling to do that. I believe that the Republicans are holding middle class tax cuts hostage. The problem on the tax cuts is that there is no compromise. Democrats fo not compromise. They cave in whereas the Republicans do not. Extending tax cuts to everyone is not a compromise but just switching to the other party’s view.

        I am not a fan of either party but this one is clearly the Republicans fault. How do you compromise on this issue with a party who tells you that they will not compromise?

        • Financial Samurai says

          Do you not believe in equality, that everyone should deserve to have a taxcut extension? If not, why?

          Where have the Democrats shown any compromise? If they know the Republicans won’t accept their bill with income limits of $200,000/$250,000, and are not compromising on the income level, then are they not holding the middle class hostage?

          Legislation starts with the House and moves it’s way up to the Senate, not the other way around, which means change has to start with the House.

  2. David m says

    By giving a tax cut to the middle-class you are also giving a tax cut to the rich as everyone will get a reduced marginal rate on the income that is taxed at the lower rates!!!!!

  3. Money Reasons says

    Since the president said that the middle class will not get additional taxes, that would be a huge loss for the democrats (IMHO). So I think they will cave or else have egg all over their faces!

    Just of the record, I’m a middle of the road guy with respect to politics too. The problem with politics is that the parties (at least these days) are either too far left or right… I would like to see a party that represents the people that care and work hard to make a living instead of them focusing on special interests and worrying about getting elected by winning sub factions of the population.

    We are all Americans, and need to think for ourselves. If we don’t think for ourselves, and we just blindly follow party lines, then we are sheep (or puppets…)

  4. retirebyforty says

    My prediction is they will make a deal so the Republicans get tax cut for everyone and Democrats get unemployment extension. The deficit will keep growing and all American will continue to hate congress.

  5. UH2L says

    This logic is completely flawed. The reality is that with this bill the Democrats are highlighting the fact that the Republicans prioritize the needs of the wealthy over those who are middle class or even unemployed! They are the ones holding the middle class hostage and it is shameful of the Republicans.

    I find it funny how financially “conservative” people say that when the government provides funds in a stimulus plan, it doesn’t create jobs but when the pockets of the rich are lined, that it does create jobs. If this was true, then the tax increases during Clinton’s years would have held back the economy and our current tax reductions should be making jobs right and left.

    It’s also interesting that we’re talking personal tax rates. The incomes of small private business owners always seem to be inflated by the Republicans. What percent of small business owners make over $150K? I’m just speculating, but it’s probably 30% max. Corporate tax rates probably affect jobs more but then corporations are generally hoarding cash right now.

    If we want to have our economy come back, companies need to start hiring and stop blaming “economic uncertainty.” There always is and always will be economic certainty. With an abundance of skilled workers available on the cheap, now is the best time to hire. By hiring people and giving them decent salaries they can become consumers again. The unemployed make bad customers.

    • Financial Samurai says

      How is the logic flawed? If Democrats know their bill won’t pass because it doesn’t include tax cut extensions for everyone, then they are just wasting everyone’s time for pushing a bill that won’t pass instead of compromising. Sounds highly logical to me.

      The reason why corporations aren’t spending their massive cash hoards is simply because they are hesitant to spend until they know what their tax expenses will be in the next two years! http://www.financialsamurai.com/2010/08/26/small-business-owners-fire-employees-before-tax-hikes/

      • George says

        Ever hear the expression that you shouldn’t give up until you try? Well the Democrats are trying to pass a bill and the Republicans are saying no.

        As was mentioned earlier, it actually is far because the rich will benefit to the same extent as any other American due to the graduated income tax.

    • Kevin @ CreditShout says

      Even if less than 30% of small business owners make over $150k that will still have an indirect impact on tens of millions of jobs considering 99.7% of all businesses in America are small businesses.

  6. Mars says

    I think the problem with this analogy is that it also essentially argues by proxy that Republicans should have a dominant position over democrats. The argument is that the “best” work is exactly what the Republicans ask for, no compromise (as evidenced by the refusal to vote for a renewed tax cut. Couldn’t you by example then also say that by demanding that a proposal that democrats won’t support (extension of tax cuts for all) republicans doing exactly as democrats say?

    If anything the “teacher” in this instance would be the American people, who would in fact be perfectly fine with the continued tax rate for 98% or 99%. The republicans are acting far more like a project partner who deletes a group assignment unless its written to their specs though they’re going to refuse to do any of the work.

    Extending the tax cuts to only the bottom 98% saves 20% of the cost of the stimulus plan and allows a movement towards beginning to deal with our long term projected deficit. If all of the government’s budget commitments remained exactly the same we would have a several trillion dollar budget deficit in less than a few decades.

    Very soon programs will need to be cut to balance budget and revenue, recession or no. 700 billion is a lot of revenue. Its a lot more than we save by freezing government wages as an example. Extend tax cuts to all and you deal with a severe problem of diminishing returns that means stopping payments to critical programs supporting general welfare and the economy in exchange for the “benefit” of the weakest possible type of stimulus, tax breaks to people with plenty of revenue.

    • Financial Samurai says

      Why do you think Democrats aren’t willing to raise the income limit to $500,000 or $1,000,000 instead? I think the Republicans would go for that, coupled with reduced defense spending. What do you think? Shouldn’t Democrats offer up something new than to stubbornly continue to ram the bill through?

      • Mars says

        They DID vote on a bill to pas tax cuts for people making under 1,000,000 and republicans ALSO blanket voted against that (Senate). It’s come to a head where the problem isn’t the number, the problem is the politics. It doesn’t matter what the sound policy is, Republicans are holding out for the most embarrassment possible for the president. Thereby why they stood him up for the original meeting the was supposed to talk about cooperation including this dealing with the tax cuts, and why the day after agreeing to work towards a bipartisan policy they issued an ultimatum saying they weren’t during any other work until tax cuts were extended for everyone (Senate). Which is why we got the political theater in the House in the first place.

        The current “compromise” position being floated by the White House is that we continue the bush tax cuts for everyone, without finding any cuts to balance them, and Republicans will let unemployment benefits be extended, IF democrats find spending cuts they can agree with. So basically we’re going to trade 700 bil in tax cuts for maybe 33 bil for unemployment, after already just handing over a wage freeze. This is why I say the democratic party is going to start ditching Obama like flies and the deficit will go no where.

  7. tapper2 says

    Our federal government bails out huge corporations (which lines the pockets of the wealthy) and then looks to the hardworking American people to foot the bill. How about going back to those corporations and saying – we helped you now you help us. Furthermore, I believe that families making more than $250,000.00 per year have a responsibility to pay more taxes. The rich are getting richer in this county and the middle class are getting poorer. The gap between the rich and middle class is growing rapidly and at some point we are going to be like the middle east countries where there are rich and poor – no middle class. One of the great things about this country is that we do have a middle class – let’s keep it.

  8. Kevin @ CreditShout says

    @tapper2 I agree that the rich continue to get richer, taxing the rich more may seem like an obvious answer but the truth is that it isn’t going to solve the problem.

    The fact is that taxes on the wealthy effect everyone indirectly. Those making over $250,000 are often small business owners who others depend on for jobs. 99.7 percent of all businesses in America are small businesses. If the owners of these businesses have to pay more in taxes, they aren’t able to hire as many people and I will tell you first hand as a small business owner this is the case. If my taxes go up next year, I will be forced to hire less people because of my lower margins. This is one of the worst things you could do when trying to increase the amount of jobs in this country.

    I stand by my philosophy that the rich in this country are not evil, many are literally the most generous and kind people you will ever meet, however it’s becoming increasingly popular in our culture to treat people who have been successful in this country like they have committed a crime and should have to pay for it.

    Sure making 20 million a year is a lot – but what has uncle sam done to deserve 8 million of that?

    Kevin

    • tapper2 says

      I have to agree with everything you’ve said Kevin. And tax breaks should be fair across the board – everyone, regardless of income should benefit. I was just ranting yesterday because I am saddened and a bit angry at the direction our country seems to be headed in and I am concerned about the future of my children who are about to graduate from college. I’m quite angry about outsourcing jobs to other countries, but that is a topic for another conversation.

  9. Name: Mark says

    I’m eagerly awaiting the word from “fiscal conservatives” that extending tax cuts will lower the deficit, with historical referents as justification. I’m also waiting for Obama to declare his Capitulation as a sound economic decision.

  10. Forest says

    Although I do call for equal treatment for some reason I do think there is some merit for a sliding tax scale. But Taxes are a tough thing to work out and obviously I do sympathise with the 1 tax for all policy. But to make that work you would need to tax everyone say close to 50% (a guess) to collect the same amount of tax as a sliding scale that collects less from the poor.

    Another option would be to make a much higher tax but raise the bar for earnings that are tax free. Say the first 13k of your earnings are 100% tax free and the it goes to 38% after that or some similar plan.

    My friend is pretty tiny, not little person tiny but smaller than average and she thinks her less drain on society should mean she should pay less tax :). So maybe a size related tax scale could shake up this whole messy system ;)

  11. Financial Samurai says

    Interesting, someone just said someone on the hill read this post over the weekend, and it helped them make a decision!?!

    It turns out that the compromise went exactly as written in the last paragraph,

    “Everything is rational, which means that deep down, American people, including the President and Democrats believe that discrimination based on income is wrong. As a result, there is absolutely no doubt in my mind that tax rates will stay at current levels in 2011 and beyond for ALL Americans. Let the Republicans therefore agree to extend unemployment benefits another 52 weeks for those who’ve already had 99 weeks of benefits. 141 weeks of unemployment benefits is still much less than the 260 weeks of unemployment benefits suggested!”

    2 year extension on tax cuts and 1 year extension on unemployment benefits! Maybe blogging does make a difference!

  12. Laurie Allen says

    I have to agree with everything you’ve said Kevin. And tax breaks should be fair across the board – everyone, regardless of income should benefit. I was just ranting yesterday because I am saddened and a bit angry at the direction our country seems to be headed in and I am concerned about the future of my children who are about to graduate from college. I’m quite angry about outsourcing jobs to other countries, but that is a topic for another conversation.

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