Fiscal Cliff Deal was a Raw Deal for Low-Income, Working-Class People

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Written by Shawn Fremstad   
Wednesday, 09 January 2013 13:25

In a fascinating recent post The Nation’s Greg Kaufman pulls together a range of responses from economic justice advocates and researchers (including me) on whether the fiscal cliff deal was a good one for low-income people.

Reading it along side what's been written over the past week, I have a very difficult time understanding how the cliff deal can be characterized as anything but a raw deal for low-income people. After all, this is a deal that permanently(!) extends 82 percent of the Bush Tax Cuts without restoring the Making Work Pay tax credit, lifting the debt ceiling or averting across-the-board cuts in many low-income and other programs now scheduled to go into effect on March 1.

Not restoring the Making Work Pay tax credit means that low- and middle-income workers will experience incomes losses in 2013 compared with the last four years (2009-2010 when the Making Work Pay tax credit was in place, and 2010-2011 when the less progressive payroll tax cut was in place). That’s a horrible outcome for poorly compensated workers and for the still weak economy in general.

As I understand it, the case for this being a good deal on balance for low-income people comes down to three points: 1) it doesn’t cut programs that help low-income people; 2) it temporarily(!) extends some targeted expansions of the Child Tax Credit and the Earned Income Tax Credit that were part of the Recovery Act; and 3) it extends the federal Emergency Unemployment Compensation program through 2013.

Since the deal doesn’t include any spending cuts (and just defers decisions about them for a few weeks), there’s no reason to celebrate the mere absence from the deal of specific cuts to low-income benefits. 

The one-year extension of Emergency Unemployment Compensation (which amounts to about $30 billion for the long-term unemployed) is terrific, although hard to celebrate as anything more than minimally decent with nearly five million people currently out of work for more than six months.

For low-income advocates, the case for this being a good deal mostly seems to come down to the temporary (five-year) extensions of the Recovery Act’s narrowly targeted expansions of the Child Tax Credit and the Earned Income Tax Credit.

If this is the case, then we’ve really set the bar way too low. As I detail in Greg’s Nation post, the temporary extensions of the Recovery Act’s Child Tax Credit and EITC expansions are good, but modest when considered in the context of the overall deal. This is especially the case for the EITC expansions, which reach only 2.6 percent of tax filers with incomes below $20,000, and seem to have diverted attention away from the more important and broad-based Making Work Pay credit.

And let’s not forget about the outrageous time limit placed on these modest expansions for poorly compensated workers. As I noted in Greg’s post, the expansions are “limited to only five years, unlike the permanent and much larger extension of tax benefits for the wealthy.” In a subsequent CBPP post, Bob Greenstein provides further background on why temporary nature of these expansions is so appalling. In 2010, President Obama agreed to a deal with Republicans that linked a two-year extension of estate tax cuts to a two-year extension of the Child Tax Credit and EITC expansions. But in the current deal, Obama agreed to a permanent extension of the extravagant estate tax cuts without getting a corresponding permanent extension of the tax credit expansions.

Finally, some commentators have argued, as Greenstein does in a recent post that “what’s important at this point is not assessing winners or losers but, instead, understanding what lies ahead.” Greenstein is right to stress the importance of the fight ahead, but having a clear understanding of how raw a deal low-income people got in the cliff deal and drawing some lessons from it for the future can only help us going forward. 

In her new book, organizer Jane McAlevey writes:

“…organizing, at its core, is about raising expectations: about what people should expect from their jobs; the quality of life they should aspire to; how they ought to be treated when they are old; and what they should be able to offer their children … Expectations about what they themselves are capable of, about the power they could exercise if they worked together, and what they might use that collective power to accomplish.”

One of the lessons I draw from the fiscal cliff deal is that we need to do much more to raise expectations about what working-class people deserve and are capable of when it comes to their jobs and their government. A good starting point here would be raising expectations about bringing back the Making Work Pay Tax credit. As a centerpiece of the then-candidate Obama’s Tax Plan in 2008, Making Work Pay, along with other progressive elements of that plan that have since dropped off the radar screen, seems like an exceedingly reasonable and realistic thing to be raising expectations about.

Tags: Child Tax Credit | economy | EITC | Fiscal Cliff | low-income workers | taxes | unemployment