Who Loses Under Obama's GOP Tax Compromise? The Working Poor

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Working Poor Will Pay More After Obama's GOP Tax CompromiseWhen President Obama defended his tax cut compromise with the Republican Party, he insisted that he was helping working people avoid taking a pay cut. "I'm focused on making sure that tens of millions of hardworking Americans are not seeing their paychecks shrink on Jan. 1, just because the folks here in Washington are busy trying to score political points," Obama said.

But as tax experts look at the proposal more closely, it has become clear that the working poor will actually end up losing money under the new arrangement.

"Single working people with earnings below $20,000 and married couples with earnings below $40,000 are worse off under the payroll tax cut proposals in the compromise between the president and the Republicans," explains Bob Williams, a senior fellow at the Washington, D.C.-based Tax Policy Center.

Here's why: The Obama proposal substitutes a Social Security payroll tax cut for the Making Work Pay credit, which was targeted to do the most good for low-income families. Under current rules, the working poor receive $400 when they earn at least $6,452 a year through the Making Work Pay credit. Married couples with earnings above $12,900 get $800 under the program.

The compromise cuts the Social Security payroll tax from 6.2% to 4.2%, so a couple wold have to earn $40,000 to get the same $800 tax benefit. Every working-class couple earning less than that will get less than $800, meaning they lose money under the Obama proposal.

Benefit to the Rich Increases Fivefold

The rich, however, do really well. A worker earning $106,800, the maximum amount of income subject to Social Security tax, stands to save $2,136 in payroll taxes. A married couple with both spouses making over $100,000 will actually save $4,272.

Obama had been saying for months that he wanted to increase the tax burden on the wealthy while keeping it the same for the middle class. But the new plan actually increases the tax burden on the lowest-income working families. "If you are worried about who needs the money and are trying to help people, targeting the cuts to the wealthy who don't need it seems the wrong way to go," Williams says.

While the Obama plan doubles the projected stimulus effect -- the payroll tax cuts will total $120 billion, while Making Work Pay is only $60 billion -- the plan is unlikely to be as effective dollar-for-dollar in getting people to spend.

"Money going to the rich is not going to juice the economy the same way as money going to the poor does," says Williams, "because the poor spend every penny they get, and the rich save a chunk of theirs, and that's not stimulative."

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bolo5000

This is crap. Poor people don't pay income taxes because they are generally refunded everything by the Fed. The states may get a bite out of em though.

December 16 2010 at 10:32 PM Report abuse rate up rate down Reply
hdridera

Obama and the entire house and congress will burn in hell the entire system is fkd up beyond repair we live in a insane assalyum run by the inmates and have done so for many years now. Any taxes are nothing more than legal extortion anyway. Just remember if there is not any rich to hire the poor the poor dont have jobs its been that way since time began and i dont suppose thats going to change.

December 16 2010 at 10:53 AM Report abuse rate up rate down Reply
wesxauto

Just about every bill in the last 4 or so years has been over written or is in some way distructive to a large segment of America. The stupidty of our goverment to wait to address a bill that will effect nearly every American and have to hurry up and pass something that is not just right seem to be a bad pattern of our goverment.

December 15 2010 at 11:18 AM Report abuse +1 rate up rate down Reply
vcgh2000

This article is only a smokescreen to deflect criticism of the real compromise that he made with the super-rich.

December 15 2010 at 7:41 AM Report abuse +1 rate up rate down Reply
Gary R. Lee

Come on stop with the propaganda already. You can quote what a working class couple making over 100,000 will save but you can't break down what a couple making 40,000 will make other than say they don't save money. In the overall picture the working class poor are getting all their money back at the end of the year while the middle class person making over a 100,000 is paying taxes. Your generalization that the couple making over 100,000 is not spending all their money is irresponsible. Their children are not getting financial aid for college and all the other socialist programs that suck their tax money. Plus depending on the part of the country in which you live, a 100,000 doesn't go very far. So stop with the rich get everything already! They also pay the lions share of the taxes as it is, and why is everyone so afraid of admitting that maybe they work harder than the rest of us, or that maybe they are smarter than the average person that just sits around and rails about how the rich are ruining our country. So why don't we all just get off our asses and aspire to make more money and stop whining and taking peoples money from them so the government can redistribute the wealth that is not theirs to redistribute in the first place.

December 14 2010 at 4:43 PM Report abuse +2 rate up rate down Reply
chrishuff2

Can someone please help me? Of the scandelous amount of money which Madoff stole from his fellow Jews; how much money subsequently made its way as political contribution to Barrack Obama's campaigns, Schumer's campaigns, Hillary Clinton's campaigns, and Rangel's campaigns? Please help me. I am obsessive compulsive and will simply explode if I do not find this information. "Stimulus" funded programs refuse to pay for my psych assessments.

December 14 2010 at 12:09 PM Report abuse -4 rate up rate down Reply
2 replies to chrishuff2's comment
luv2lykpi

Probably less money than our officials have 'Made Off With' from the Social Security Trust Fund. And no one will go to prison for that one.

December 14 2010 at 4:03 PM Report abuse +2 rate up rate down Reply
ak841

Most of it went to G Bush

December 14 2010 at 8:24 PM Report abuse rate up rate down Reply
lgc58

Williams is not an authority on financial class.... I make $100,000 plus change and it takes every penny to support my family. I am also supporting 4 grandchildren so they don't have to go on medicaid. I make to much money to get help with medical insurance and I can't claim them on my health insurance without a court order placing them in my custody, so I have to pay cash for everything. I do claim them on my taxes, but so what...Braces this year alone is killing me. Don't tell me that OBAMA is helping me-- whatever!!!!!! I have to pay more for my health insurance so those who make less than me can pay less. I am being penalized for working my butt off by my company and the government. Geez-you can't win for losing now days.

December 14 2010 at 12:00 AM Report abuse +3 rate up rate down Reply
2 replies to lgc58's comment
luv2lykpi

Obama sold everyone out this time. Someone needs to write the words "Primary Challenge" on his teleprompter.

December 14 2010 at 4:01 PM Report abuse rate up rate down Reply
jmlawson

Primary challenge? Primary way to ensure a republican electoral victory I'd say

December 14 2010 at 5:12 PM Report abuse rate up rate down Reply
tsafa

How the hell do you people get off calling someone only making $100,000 rich. That is not even upper middle class. Your not rich unless you are making more then 1 million dollars a year. Anything less then that is a hard living. Anything less then 100k means you made some bad decisions in your life.

December 13 2010 at 4:32 PM Report abuse -2 rate up rate down Reply
mhcadogan

If you have to "earn" your wealth, through work and education, the super rich look at you with the same contempt that you have for people earning less than you. Money makes money faster than men. If you worked your way "up" (through the gi bill etc..) they will pretend to admire you (atleast in public discourse) but you will never be more than a tacky interloper.who managed to upset the natural order through entitlements and theft. All of the same arguments were made in the 1920's when most of our grandparents were descibed with the same contempt now being spewed at the lower and middle classes.

December 13 2010 at 1:10 PM Report abuse -2 rate up rate down Reply
crimson00king

They should let the tax breaks expire most Americans wouldn't be affected by higher taxes any way this is a joke. When you make next to nothing what is the difference. But for the rich its a real big deal. I say let them expire NOW

December 13 2010 at 12:43 PM Report abuse rate up rate down Reply
2 replies to crimson00king's comment
enpassant44

I agree! Extending all the tax cuts will cost $4 trillion over the next ten years.

December 13 2010 at 10:27 PM Report abuse rate up rate down Reply
luv2lykpi

Relax, the cash they're raking in won't be worth anything soon.

December 14 2010 at 4:05 PM Report abuse +1 rate up rate down Reply