the WHITE HOUSEPresident Barack Obama

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The Framework for a Tax Agreement Is a Good Deal for Working Families

Summary: 
An in-depth look at the compromise framework on tax cuts, unemployment insurance, and job creation.

Some recent articles have incorrectly suggested that the tax framework did not do well by middle-income families, hard-pressed workers and their children. We wanted to clear up the record. The tax framework the President agreed to includes provisions he fought for and secured that are very positive policies for jobs and growth, for the middle class and for our nation’s most hard-pressed working families.  The President fought for an increase in the child tax credit of up to nearly $1,500 for a low-income family with two children and will work to make it a permanent part of our tax code. Middle-class families will keep their tax cuts and get an additional tax cut worth hundreds of dollars more than what they get this year. And the economy will get additional jobs, with several outside economists estimating more than 1.5 million because of the items the President pushed for in this agreement. There are provisions that benefit that wealthy that the President would have preferred to exclude, but we should not miss the forest for the trees.

What the framework means for working families

Remember where the Republicans were when we started this process. Their tax proposals included no extension of tax credits like Making Work Pay, the expanded refundability of the child credit, the Earned Income Tax Credit (EITC), or our new expanded – and partially refundable – tax credit for college. Several of these tax credits were not contained in the progressive and fiscally responsible House-passed tax bill supported by the President.

Let’s start with what the payroll tax cut means for working families. Any single person with kids who earns over $20,000 will do better under this framework than they would have if we had fully extended Making Work Pay with full refundability. So will any couple making over $40,000.

What is true is that if you look only at what we secured on the payroll tax cut, a single parent of two children working full-time at the minimum wage, making $16,000 a year, would get a payroll tax cut worth $320 – $80 less than what they got from Making Work Pay this year.

But that misses one of the most important wins for progressives in this negotiation. The President secured the full increase in the Child Tax Credit for working poor families that Democrats had fought so hard for in the Recovery Act – even though this type of refundability is strongly opposed by Republicans. That means that the same family making $16,000 would get an additional tax cut of nearly $1,500 – multiples more than the difference between Making Work Pay and the payroll tax cut.

On top of the refundable Child Tax Credit , the President successfully negotiated to ensure that every penny of the gains in the EITC that were passed in 2009 are secured for two more years. As is the President’s American Opportunity Tax Credit for college. Extending all of these provisions for two years puts the President in the position to succeed in making them permanent along with the rest of the middle-class tax cuts.

The President also secured a thirteen month extension of unemployment insurance. For the families that need it, this means $300 per week – dwarfing the $80 per year that family making $16,000 lost relative to Making Work Pay. Overall, more than two-thirds of the benefit from extending unemployment insurance flow to families making less than $100,000 per year.

Finally, and most importantly, there is nothing more important for the middle class and working poor than to accelerate the pace of job growth in our country. Nothing. Independent experts estimate that the provisions the President added to the agreement will create more than 1.5 million jobs over the next year – a benefit of this overall agreement that should not be ignored.

What the framework means for the middle class

The middle class faced a stark reality: on January 1 of next year, a typical family with two children making $50,000 was set to lose nearly $3,000 in tax benefits. This would have been devastating to middle class families and also to the economy – the Congressional Budget Office projected that this scenario could have reduced economic growth by 1.7 percentage points in 2011. Even if the tax cuts had been eventually extended, creating that degree of uncertainty in our economy at a time when unemployment is so high, would have been taking far too much risk with our economy and job situation.

The President not only got an extension of all of the tax cuts, his payroll tax cut will mean a larger tax cut and more jobs for middle-class families. A couple making $50,000 will see a continuation of all of their tax cuts plus a $1,000 payroll tax cut – which is $200 more than they got from Making Work Pay. A couple making $80,000 would get an $800 larger tax cut than they got from Making Work Pay.

What the framework means overall

Critics have said the overall agreement is too regressive. It is certainly more regressive and gives much more to high-income households than the President would have liked or than most economists think was economically effective. That is why the President insisted that these Republican provisions be extended for only two years, and why he intends to make the case vigorously that our country cannot afford to extend these tax cuts beyond 2012.

But make no mistake: the President did not compromise when it came to working families, the middle class and jobs. Working families get a continuation of major tax cuts, the middle-class see their taxes go down from 2010, and substantial numbers of new jobs will be created.

Jason Furman is Deputy Director of the National Economic Council

Gene Sperling is Counselor to the Secretary of Treasury