Compromise would extend Unemployment Insurance, improvements to tax credits for working families

The Obama administration and Congressional Republican leaders have announced a “framework agreement” for a compromise that includes good news for low- and moderate-income working families and some bad news in the struggle for fair and responsible tax policies.

First, the good news:

• The framework agreement extends Unemployment Insurance benefits for 13 months to the end of 2011. According to the White House, as many as 2 million Americans in December alone, and 7 million over the next year, could lose their Unemployment Insurance benefits without the extension.
• The improvements to the Child Tax Credit (CTC) that were included in the Recovery Act are extended for another two years. Approximately 156,000 Minnesota children and their families have benefitted from these improvements, which have brought an additional $126 million to Minnesota families.
• The compromise framework extends for two years improvements to the Earned Income Tax Credit (EITC) that were part of the Recovery Act. Approximately 102,000 Minnesota households have received an additional $51 million, thanks to these improvements. Eligible families with three or more children will receive an average of $600 from this extension.

We sent a letter to the Minnesota Congressional delegation on November 17, joined by 57 other nonprofit organizations, expressing our support for continuing these provisions. These are among the most effective actions that policymakers can take to help support consumer spending, a critical component of the economic recovery.

Now, the bad news:

• The framework agreement would extend all of the expiring 2001 and 2003 tax cuts, including cuts for households with annual income above $250,000, for two more years.
• The federal estate tax would be reinstated well below its 2009 level for the next two years, with a $5 million individual or $10 million per couple exemption and a maximum tax rate of 35 percent on the taxable portion of large estates.

Extending the tax cuts for high-income households is unwise, unfair, and unaffordable. The Center on Budget and Policy Priorities estimates that permanently extending the tax cuts for households with annual incomes above $250,000 would add $1 trillion to the federal budget deficit and debt in just the first ten years. Furthermore, the Congressional Budget Office (CBO) found that extending the tax cuts for the highest income households is the least effective option of those they studied for stimulating the nation’s ailing economy. In contrast, extending Unemployment Insurance benefits (as the framework agreement proposes) or putting more money into the hands of low-income families does the most to stimulate the economy because those families are most likely to spend any additional money they receive.

The estate tax cuts go too far. They would provide an estimated $20 billion in tax reductions over the next two years exclusively to the top one-quarter of one percent of estates, which would receive an average tax cut of about $1 million each. The Tax Policy Center estimates that only the top one-seventh of one percent of estates would owe any estate tax at all, and their effective tax rate would average only about 14 percent.

The framework agreement must now be written into legislation that will be debated and voted on in the House and Senate. This appears to be the only way that Congress will agree to provide additional weeks of Unemployment Insurance and renew the tax credits for low-income families. These are two of the most effective ways to help support the struggling economic recovery.

Stay tuned as the debate in Congress continues to unfold.

-Steve Francisco