Last night, President Obama announced that he had come to an agreement with the GOP that would extend the tax cuts instituted by former president George W. Bush. In a somewhat unusual situation, Obama has become a Republican ally on this issue by default—a large contingent of his own party is and has been opposed to this extension throughout the negotiation.
The Extensions Are A Go
According to the Wall Street Journal, the deal—which is currently an agreement and must still be put into official legislation—will extend tax rates for businesses, capital gains (which were proposed to rise from their current 15% tax rate to 20%), and dividends. It may implement a decreased estate tax, and as a Democratic concession, will revive a previously rejected program of benefits for the unemployed.
Estate Taxes Are Another Matter
This estate tax (the tax an heir must pay upon inheriting a sizeable estate of money and other assets) is another contentious point in the negotiations, but one that, according to Daily Finance, “remains mostly submerged below the public radar.” The president leans toward the 2009 estate taxes, which demand a 45% tax on estates over $3.5 million, but no tax on estates worth less. Republicans counter with a lower tax rate of 35% that will only apply to estates worth over $5 million, with no taxes on estates worth less. If an official agreement isn’t reached before the new year, the estate tax will again become a sizeable 55% on estates worth $1 million or more—the same tax rates from 2001.
A Compromise Is In Our Best Interest
Another tax cut drawing notice is the potential cut of Social Security taxes, from 6.2% down to 4.2% for workers. It wouldn’t affect the employer’s 6.2% tax, and therefore wouldn’t affect the cost of hiring new workers. And that is the main concern of what seems, to those of us less politically-minded, like an overly messy fight about arbitrary numbers: how it will affect the economy at large and the reality of our day-to-day lives. While Republicans quake in fear of increased taxes and the Democrats charge into righteous extension-ending proposals, everyone is in fact considering the larger issue. Whether red or blue, it’s about what is best for the U.S. Or at least, it’s supposed to be.
Tell us in the comments: Do you think the tax compromise will have positive ramifications in the economy, or are we just digging ourselves deeper into a hole?