The Claim: Obama's Middle Class Stimulus Actually an Unpopular, GOP Trojan Horse That Rips Off the Poor


If you're just joining us for news about Obama's compromise on the Bush tax cuts, here's how to catch up.
-- The plan's outline is here.
-- If you don't know what to think, choose from the buffet of reactions here.
-- If you still don't know what to think, consider the alternative scenarios here.
-- House Democrats reject the plan here.
-- The Bush tax cuts, unemployment benefits and payroll tax cuts -- three key elements of the plan -- are explained here, here and here.

President Obama's tax deal with Republicans will almost certainly pass the Senate and House for three simple reasons: (1) Enough Republicans like it; (2) Enough Democrats will accept it; and (3) Americans love it.

But there's a catch. The biggest concession the White House's got from the deal -- a payroll tax cut for almost all Americans -- is opposed by Americans and it's getting slammed by progressives

According to a Washington Post poll, two in three Americans support the tax deal, including 75 percent of Republicans and 68 percent of Democrats and Independents. But when you break down support for each provision, you see something very strange indeed: Americans support extended unemployment benefits most of them won't receive, and shrinking an estate tax most of them won't have to pay; but they do not support the plan to cut payroll taxes for almost all working Americans. (Huh?)

payroll tax cut is unpopular.pngTotally mystifying. Unemployment benefits are fine stimulus policy, but fewer than a tenth of the population will benefit from this extension. A minuscule number of Americans were in danger of dying with enough wealth to trigger the old estate tax. On the other hand, a payroll tax cut would save a $50K earner about a thousand dollars and a $100K earner about two thousand dollars. This is a huge tax cut. Americans like tax cuts. Do Americans really think this is a bad idea?

Some clearly do. By "some," I mean progressive budget wonks. Here's an important chart from David Dayden comparing the Making Work Pay tax credit in the stimulus with the proposed payroll tax cut. The payroll tax cut is much better for the upper middle class and worse for state and local workers (who pay no Social Security tax) and sub-minimum wage workers. The budget office is looking into finding ways to get state and local employees their tax cuts.

payroll tax cut v making work pay.pngFinally Mike Konczal, a friend of The Atlantic, argues that we shouldn't think about the payroll tax cut and the child tax credit as a White House "get," because Republicans like both ideas.

I wonder if this is the best way to think about the compromise. The fact that Republicans support a policy doesn't make that policy irredeemably Republican, nor does it require that the White House add another policy that the GOP doesn't like to offset it. The child tax credit is a great way to make the poor net beneficiaries of the tax code. The payroll tax cut is a great way to give money to middle class families. Rather than divide the columns into blue and red, why not divide them into two simpler categories: Stuff I Like and Stuff I Don't Like.

Stuff I Don't Like includes the Bush tax cuts for the most wealthy, and the unfortunate estate tax cut. Stuff I Like includes just about everything else. The payroll tax cut is not perfect, it's not as generous to the low-income and it probably sends quite a bit of money to high income families who don't need it. But I don't get the backlash.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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