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Leo Hindery, Jr. Headshot

'Hide the Pea': The Obama-McConnell-Boehner Tax Bill

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One of the saddest things in politics is the "Big Lie" -- what some of us who are older once called "Hide the Pea" -- and thank God for the likes, in the Senate, of Sherrod Brown (D-OH), Tom Harkin (D-IA) and Bernie Sanders (I-VT), and, in the House, of Nancy Pelosi and Peter Welch (D-VT) when it comes to pointing out the Big Lie and the Hide the Pea ploys behind the Obama-McConnell-Boehner Tax Bill.

It's also more than sad that the bill is almost universally referred to as the "Obama-McConnell-Boehner Tax Bill". When two of the three names are the Republican leaders in Congress, and there is no Democrat from either the House or the Senate, then, Mr. President, this bill is hardly bipartisan. It's clear that House Democratic lawmakers, and most Democratic Senators, were frozen out of the negotiations that produced your agreement.

Even the spokesman for Senate Majority Leader Harry Reid (D-NV) said on Friday that the House Democrats' protest late last week will have little impact on the bill's progress in the Senate. "Their vote demonstrates they may be irrelevant to this process," he said.

After eight uplifting, heroic hours of mini filibuster on the floor of the Senate last Friday, the wonderful Bernie Sanders rested by saying, "I'm not here to set any great records or make a spectacle. I am simply here today to explain to the American people the fact that we have got to do a lot better than this agreement provides."

At least 25 percent and up to a third of the earned income tax savings from the Obama-McConnell-Boehner Tax Bill will go to the wealthiest 2 percent -- and this percent will be a factor or two more if the tax benefits for the wealthy are extended after two years as McConnell has said he will demand. The deal also includes a two-year 'patch' for the alternative minimum tax and reinstatement of the estate tax with a dramatically lower rate and a much higher exemption than in 2009, which offer far more savings for high earners than those in the low-income or middle-income brackets. And the wealthiest Americans will also reap tax savings from keeping the cap on dividend and capital gains taxes at 15 percent, which is well below the highest rates on ordinary income.

While in the Senate Tom Harkin (D-IA) was calling it "an understatement'' to say he was disappointed and Sherrod Brown (D-OH) was saying that "this agreement gives up too much to the super-wealthy without getting enough for the middle class", Senate Republican Leader Mitch McConnell was asking Democrats in Congress to now "show the same openness to preventing tax hikes that the administration has already shown.'' (Mr. Obama seems to have forgotten that it was the same Mr. McConnell who said right after the November 2 election that "the single most important thing we [Republicans] want to achieve is for President Obama to be a one-term president.")

President Obama says that failure to pass this bill "could cost our economy well over a million jobs.'' Frankly, I'm not so sure about this figure, but regardless there is no limit of credible foundation for contending that an alternative of the sort that the likes of Brown/Dorgan/Harkin/Sanders/Pelosi would pass instead would create most of the millions of new jobs we need today, when real unemployment is 18.7 percent and not the 9.8 percent which the president persists in using.

Sherrod Brown acknowledges that "President Obama wants what we want: tax relief for the middle class and help for those hurt the most by the recession", and I believe that most Americans concur. But as the Senator went on to say, the president "gave up too much to get it." And with this latter statement, fully 77 percent of voters definitely agree.

President Obama clearly wanted to score points with moderates and independents, but these are points that will never be tallied. Based on just the skimpy information that the general public has seen, 42 percent of the electorate already says that "Obama got rolled by the GOP", 35 percent say the "deal is irresponsible", and only 23% say "it's a good deal." And I would venture to say that when "skimpy information" becomes "facts known", then even the 23 percent who now say it's a good deal will drop down to only about 10%, who are of course the nation's wealthy.

The 10-year price tag of the Obama-McConnell-Boehner Tax Bill is a stunning $858 billion. According to Congress's bipartisan Joint Committee on Taxation, the tax provisions in the package will cost $801 billion over 10 years, while the 13-month extension of enhanced benefits for the long-term unemployed adds $57 billion. That's right, 14-times more in tax benefits, mostly to the wealthy, than the amount going for the unemployment benefits extension, which is what Mr. Obama said was his sine qua non.

In a sweetener of sorts for Democrats, the bill extends a program of cash grants for wind and solar projects, tax credits for energy-efficient appliances, and favorable tax treatment for mass-transit benefits for employees. But when added together, all of the 'concessions' to the Democrats, and thus to the middle class and the workers of this country, are worth but a fraction of what they are entitled to and are but a fraction of what will actually go to the wealthiest Americans.

It is this massive imbalance that is "Hide the Pea". This is the "Big Lie".

Even the Senate version of the bill made public by Senator Reid last Friday and any alternative version likely to be voted on this week is likely to be largely the same bill first announced by Obama and McConnell. It may add a one-year extension of a program that provides cash grants for construction of new solar and wind energy projects, at an additional cost of $3 billion, bringing the grand total to $861 billion, and maybe make some slight changes to the estate tax provision. But nothing that is going to swing the pendulum back to where it belongs.

With last year's federal deficit at 8.9 percent of GDP, adding nearly $900 billion to the long-term federal deficit and $300 billion next year alone without getting meaningful stimulus -- which means millions of new jobs -- and giving fair benefit to the middle class is unconscionable. And right now this bill does neither.

In the president's own words, it adds maybe a million jobs when we need to find 22 million in order to fill the real unemployment "jobs gap"? And regarding 'fair benefit', all we are really doing is watching be broken the promise that Senator Obama made a central part of his election campaign in 2008 (and that he has reiterated many times since), namely, that our once progressive tax system would be fairly restored and that taxes would be raised on the rich to at least where they were before the Bush tax cuts? And broken in such a way that, as The Economist has written, this "whole poisonous subject [can] be reviewed again in the run-up to the presidential election of 2012?"

Our government could have spent the proceeds from taxing the richest in ways that would have much more significantly helped the economy and reduced unemployment. Although the House two weeks ago easily passed a bill that would have preserved the current tax rates for all but the richest 2% of Americans -- and later even proffered the alternative of raising taxes only on those earning more than $1,000,000 -- with the president's capitulation these alternatives never saw the light of day. As Frank Rich wrote so eloquently in the New York Times, the president's own form of "Stockholm Syndrome" won out.

We need overall tax reform now more than ever, as we need true economic stimulus to fill the massive "jobs gap" that persists despite the stimulus effort of 2009. And to get both, it may help to further raise the alarm which Bernie Sanders and others have been trying to do since this nightmare of a Tax Bill was dropped on the nation's lap. Let's look at just two of the many things the president gave up in order to score those points with moderates and independents and avoid a showdown with the Republicans which, as The Economist also notes, is "a far cry from Bill Clinton's facing down of Newt Gingrich which led to the government shutdown of 1995."

William Greider wrote in The Nation last week, "the most dangerous feature in the president's proposed compromise on taxes is not the tax cut for the extremely wealthy, it is the Trojan horse provision that threatens to destroy Social Security by undermining the long-term solvency of the social insurance system." And I agree.

For the next two years, the president has proposed to cut the 6.2 percent Social Security tax levied on a worker's wages to 4.2 percent, which sounds great until we realize that this will deprive the Trust Fund of $120 billion in annual revenue, which will eventually either have to be made up to sustain future benefits or, more likely and more foreboding, give Republicans the final excuse they need to privatize or gut or even abandon the Social Security system altogether. Adding to this unacceptable outcome is the fact that the employer's half of the tax -- also 6.2 percent -- wouldn't be changed, and thus the cost of hiring new workers wouldn't be directly affected.

In short, if this change to what Greider calls the "crown jewel of the federal government" is enacted, not only will we have materially aided and abetted the killing off of the Social Security system itself, but we will have failed to provide in the short term any real incentive to employers to hire the unemployed. The system and certainly workers would be better served by preserving the very effective $400-per-worker income-tax break ("Making Work Pay) that Mr. Obama included in the 2009 stimulus bill, which phases out for workers making more than $75,000. And in the medium term, as I wrote two weeks ago, rather than once again penalizing the hardest working Americans, we should be "means testing" Social Security, so that only those retirees who need it get it, and eliminating or at least materially raising the cap on taxable wages. These two changes alone would forever bring the nation's retirement system into financial balance.

Regarding estate taxes, under the proposed bill, the estate tax rate would be set at 35 percent for two years and would apply only to individual estates over $5 million, indexed for inflation -- this indexing of course clearly suggests that McConnell and Boehner expect an extension, otherwise why introduce it for just two years. By comparison, in 2009, when only 5,500 estates in the entire country even paid estate taxes, the top rate was 45 percent and the exemption was $3.5 million, and next year, 2011, the rate was set to go back to 55 percent, where it had been for years, and the exemption was to be $1 million.

The Wall Street Journal describes all of this as "a double dose of good news for the wealthy", and Ronald Aucutt, an estates expert, was even more effusive: "It seems estate planners got everything they wanted and nothing they didn't."

Nice going, guys, a massive give-away to no more than 5,000 or so extremely wealthy taxpayers each year that they didn't even expect, and all on the backs (again) of the middle class and of lower- and medium-income taxpayers.

As Senators Sherrod Brown, Tom Harkin and Bernie Sanders and Speaker Pelosi, and many others, have said, 'this agreement gives up too much to the super-wealthy without getting enough for the middle class'. And unless the agreement is materially improved, we really do have to question the leadership at the top that has brought us to this sad brink.

Leo Hindery, Jr. is Chairman of the US Economy/Smart Globalization Initiative at the New America Foundation and a member of the Council on Foreign Relations. Currently an investor in media companies, he is the former CEO of Tele-Communications, Inc. (TCI), Liberty Media and their successor AT&T Broadband. He also serves on the Board of the Huffington Post Investigative Fund.