President Obama's jobs council has released a report full of recommendations, including somewhat misguided points on the federal corporate income tax. The report rightly points out that the corporate income tax is full of loopholes that should be closed, but fails to call for a reform that actually raises revenue to support under-funded public services and investments. The report also perpetuates some misunderstandings about the effects of the U.S. corporate income tax on our economy and on working people.

Read CTJ's response.

Photo of Council on Jobs and Competitiveness via NCSU Web Creative Commons Attribution License 2.0

Just as President Obama caved at the end of last year to demands that he extend the Bush tax cuts for even the richest Americans, it looked like he was ready to end this year by caving on the debate over payroll tax cuts. Then, strangely, House Republicans refused to accept the surrender.

President Obama and Democratic leaders in Congress made a huge compromise before they even began negotiating with Republicans. Economists agree that the government measures most likely to boost job creation are spending measures (including things like food stamps, infrastructure, hiring teachers) but President Obama decided to focus on a tax cut in order to appeal to Republicans.

And he did not choose the tax cut most likely to boost consumer spending by putting money in the hands of low- and middle-income people. That would be the Making Work Pay Credit, which was allowed to expire at the end of 2010. Instead, he proposed extending and expanding the payroll tax cut that was enacted for 2010, and which was originally proposed by Republicans.

So President Obama and Democratic leaders in Congress proposed that this year’s payroll tax cut be extended into next year and expanded. They insisted that Congress not attach controversial policies like hurrying approval of the Keystone XL Pipeline extension, and they proposed that the cost be offset by taxing millionaires. The President and Democratic leaders eventually surrendered on all of this.

Citizens for Tax Justice estimated that the millionaire surcharge would only affect one-fifth of one percent of taxpayers and that those affected would see their overall taxes go up by an average 2.1 percent. But Congressional Republicans objected that this would burden “job creators,” so the Democrats agreed to drop the millionaire surcharge.

But Republicans in the Senate were still not happy. Senate GOP leader Mitch McConnell introduced a bill to extend the existing payroll tax cut and offset the costs with the types of cuts in public services that Republicans usually support. Strangely, a majority of Republicans voted against this bill, too.

Even the number two Republican in the Senate, Jon Kyl, opposed McConnell’s bill and said he would support extending the payroll tax cut only if it was paired with another extension of the Bush tax cuts. Our figures comparing different types of tax cuts illustrated how this was essentially a demand that the payroll tax cut can only be enacted along with much, much larger tax cuts for the rich (like the Bush tax cuts).

Senate Majority Leader Harry Reid said the Senate would not approve must-pass spending measures before the end of the year without extending the payroll tax cut through 2012. But Senator Reid backed down and made a deal with Senator McConnell. The payroll tax cut would be extended for just the first two months of next year, and it would not be expanded. It would be attached to a provision requiring a quicker approval of the controversial oil pipeline project. And, of course, there would be no tax on millionaires. This bill passed the Senate with 89 of the chamber’s 100 members voting in favor.

President Obama endorsed the deal. It would at least get Congress and the country through the holidays, after which lawmakers could take up this debate again and hash out whether the payroll tax cut should be extended for the rest of the year.

Then something strange happened. Republicans in House refused to approve the Senate bill. They voted along party lines to appoint a conference committee iron out differences between the Senate-passed bill and a bill passed earlier by the House. But the Senate had already left town.

The bill passed by the Republican majority in the House (H.R. 3630) would extend the existing payroll tax cut for a year, but because House Republicans consider this an enormous concession, the bill includes many policy provisions championed by conservatives. It would offset the cost of the payroll tax cut with cuts in public services, which is the opposite of what the economy needs right now. It includes cuts and restrictions on unemployment insurance, delays on environmental rules and, of course, a faster approval for the oil pipeline project.

It’s awfully tempting to tune out of national politics entirely right now and enjoy some eggnog, except for one thing: Millions of Americans are struggling to find decent work and the House of Representatives has done everything imaginable to block anything that might change that. If lumps of coal were environmentally friendly, we’d encourage everyone to send them by the truckload to the House members blocking progress.

The graph below compares the impacts of the Democrats’ proposed payroll tax holiday with a tax policy that is more progressive (reviving the Making Work Pay Credit) and a policy that is far more regressive (the Bush tax cuts, which are already in effect through 2012). Senator Jon Kyl, the second highest ranking Republican in the U.S. Senate, now says he would agree to extend the payroll tax cut only if Democrats agreed to extend the far more regressive policy, the Bush tax cuts.

These figures disturbed us because even the Democrats’ proposal is not really all that progressive. If the 6.2 percent Social Security payroll tax paid by workers is reduced to 3.1 percent as Democratic leaders propose, the richest fifth of taxpayers will receive $83 billion in 2012 while the poorest fifth of taxpayers will receive just $7 billion.

Apparently that’s not regressive enough for Jon Kyl. The blog Think Progress notes that on Monday, Senator Kyl said on the Senate floor that when the payroll tax cut was enacted for one year at the end of 2010, that “was part of an overall agreement in which we said we will extend all of the existing tax rates — the so-called Bush tax cuts… we would extend this temporary tax holiday from the payroll tax cut, we would extend all of those. And I supported that… Now if we can do that again, I’m all for it. I’ll support the extension of the payroll tax holiday.” 

The graph shows that the Bush tax cuts in 2012 will provide the richest fifth of taxpayers with $231 billion and will provide the poorest fifth of taxpayers with just $3 billion. For more, read our short report on these figures.

On Sunday, the second highest ranking Republican in the U.S. Senate, Jon Kyl, said, “The payroll tax holiday has not stimulated job creation. We don’t think that is a good way to do it.” Asked why he opposes letting the Bush tax cuts end for the rich or imposing a surcharge on millionaires while also opposing this particular measure to keep taxes low, he replied, “The best way to hurt economic growth is to impose more taxes on the people who do the hiring. As a result, the Republicans have said, ‘Don’t raise the existing tax rates on those who do the hiring.’”

In other words, keep taxes low for the rich. A new report from CTJ shows that the Bush tax cuts supported by Senator Kyl will provide $231 billion in benefits to the richest fifth of taxpayers in 2012 and just $3 billion to the poorest fifth of taxpayers during that same year.

The payroll tax cut proposed by President Obama and Senate Democrats is more evenly distributed but is not particularly progressive. The CTJ report shows that it would provide $83 billion to the richest fifth of taxpayers and $7 billion to the poorest fifth of taxpayers.

Most economists agree that government spending measures are the most effective way to put more money in the hands of consumers to spend and thereby reduce unemployment. But if lawmakers insist on using tax policy instead, they should enact tax cuts that are targeted to those low- and middle-income consumers who are likely to immediately spend any new money they receive.

The Senate Democrats’ payroll tax cut proposal, which would be offset by a surcharge on millionaires ( see related story), won a majority of votes yesterday (50 Democrats and one Republican voted in favor) but was blocked by the remaining Senators. Republican leaders offered their own payroll tax cut that would be offset by cutting back federal government positions and pay, but this did not even receive support from a majority of Republicans in the chamber.

The CTJ report points out that a better option would be to revive the Making Work Pay Credit that expired at the end of last year, which has been discussed by some Senators but ignored by leaders of both parties.

The report finds that if the Making Work Pay Credit was in effect in 2012, the richest fifth of taxpayers would receive $11 billion while the poorest fifth of taxpayers would receive $7 billion, making it a less costly and more targeted tax cut.

State-by-State Figures Included

The millionaire surcharge that would have offset the cost of Senate Democrats’ proposed payroll tax cut would have affected only one-tenth of one percent of taxpayers in the majority of states, and in no state would those affected pay more than an average of 2.5 percent of their income under the surcharge, as explained in a new fact sheet from CTJ.

Nationally, just 0.2 percent of taxpayers would be affected by the surcharge and those affected would pay 2.1 percent of their income, on average under the proposal.

The surcharge would be 3.25 percent of the portion of any taxpayer’s adjusted gross income (AGI) in excess of $1 million starting in 2013. This means that a taxpayer with AGI of $1.1 million in a given year would pay a surcharge equal to 3.25 percent of $100,000, which is $3,250 (less than one-third of one percent of the taxpayers’ AGI). Taxpayers with AGI below $1 million would be unaffected by the surcharge.

Of the 49 Senators who blocked the Democrats’ payroll tax proposal yesterday, the surcharge motivated many of them. Others blocked the proposal because they objected to the idea of a payroll tax cut in principle. Most Republican Senators actually voted against the version of the payroll tax brought to the floor by GOP leaders, which would have been offset with reductions in federal government jobs and compensation. ( See related story about CTJ’s figures on the payroll tax cut.)

A report from Macroeconomic Advisers, one of the most respected economic forecasting firms, concludes that unemployment would rise from 9 percent to 18 percent in 2012 if Congress had to cut spending to comply with the type of constitutional balanced budget requirement that Republicans and some Democrats tried but failed to pass today.

Most mainstream economists agree that the last thing the federal government should do during a recession is cut spending. Reducing government jobs, or cutting government programs that maintain consumer spending in a way that indirectly creates jobs, is the last thing we need when the economy is already contracting. But that’s exactly what would happen under a balanced budget requirement.

Recessions often cause budget crunches because they reduce revenues (because fewer people and businesses are generating income and paying taxes) and increase government spending (because more people receive unemployment insurance and other benefits). These automatic reductions in taxes and increases in spending can stabilize the economy to an extent. But a balanced budget requirement would make it far more likely that Congress would respond to a recession-induced budget crunch by slashing unemployment insurance and other programs that help offset the economic contraction.

That’s why Macroeconomic Advisers found that if Congress had to cut spending to balance the budget in 2012, another 15 million people would become unemployed and economic growth would drop from an expected 2 percent to negative 17 percent.

Such a proposal would seem too outrageous to even be discussed seriously —  except that a majority of the House of Representatives just voted for it. (The measure thankfully did not receive the two-thirds vote requires for approval of a constitutional amendment.)

The version considered today would not take effect for five years, but it’s important to remember that even the most conservative deficit-reduction plans discussed today would not result in a balanced budget for decades. And America will undoubtedly face recessions in the future when the balanced budget requirement would be in effect.

Citizens for Tax Justice has joined 275 other national organizations on a letter to members of Congress blasting the proposed balanced budget amendment as, to borrow the term used by Macroeconomic Advisers, “catastrophic.”

And just in case you were wondering, the balanced budget amendment considered today was the less extreme of the two versions that have been discussed lately. The version supported by anti-tax activist Grover Norquist would require approval by two-thirds of both chambers of Congress to pass any revenue increase, ensuring that efforts to balance the budget during recessions would definitely be done entirely through spending cuts and have the effects described above. Of course, the fact that a proposal is slightly less extreme than the one preferred by Grover Norquist is no indication that it’s a great idea.

Many lawmakers have apparently decided that they would address difficult fiscal problems with what seems like a simple answer. A rule making Congress balance the federal budget every year probably sounds reasonable to many people until they learn of the horrific consequences. Lawmakers have no such excuse, because they and their staffs are quite aware of mainstream economic research, which this recent report only reaffirms.

Make no mistake; those lawmakers who voted today for the balanced budget amendment have voted to destroy millions of jobs during a recession.

If the following actions were taken, some of the inequity that is driving the Occupy Wall Street and other affiliated protests would be eliminated. Suggestions include making corporations pay their fair share in taxes, ending the tax break for corporations that shift jobs and profits overseas, implementing the "Buffett Rule," and imposing a tax on the "too-big-to-fail" banks...

Read the fact sheet.

Photo of Occupy Wall Street via Eye Wash Creative Commons Attribution License 2.0

When House Speaker John Boehner said on Thursday that “tax increases destroy jobs” and are not a “viable option” for the Joint Select Committee tasked with reducing the budget deficit, he was probably unaware that a major business lobbyist and a high-profile conservative economist had admitted a day earlier that the last significant tax increases did not hurt the economy.

Bill Rys of the National Federation of Independent Businesses (NFIB) tried to explain to the  Senate Finance Committee on Wednesday his view that tax increases today would hurt the economy even though the economy thrived after the 1993 tax hikes enacted under President Clinton.

“In the 1990s,” he said, “we had a dot.com boom, we had Y2K, a lot of money being spent there, so we had much stronger economic winds pushing, pushing, which we don’t have right now.”

The obvious circularity of the argument seemed to go unnoticed by members of the committee. Rys said, in essence, that the tax increases of the 1990s did not prevent economic growth because we had economic growth in the 1990s.

Stephen Entin of the conservative Institute for Research on the Economics of Taxation, made a similar comment to explain why the Clinton tax increases did not cause the economic stagnation that he predicts would result from tax increases today.

“The Clinton marginal tax rate increases were fairly modest and we were coming out of a downturn. The growth was going to look good anyway.”

Most of the tax increases proposed today, which Entin believes will lead to a reduction in GDP, actually would just allow some rates to revert to the Clinton-era rates, so it’s surprising that he calls the Clinton tax increases “fairly modest.”

Even more surprising is his comment that the Clinton tax increases were not damaging because “we were coming out of a downturn.” No one asked the obvious follow-up question: If tax increases did not prevent a recovery in the 1990s, why would they prevent a recovery today?

Entin went on to say that what also allowed the economy to grow in the 1990s was the capital gains cut signed into law by President Clinton in 1997, which reduced the top capital gains rate to 20 percent.

“Please remember that he did sign a capital gains tax reduction and a lot of the growth in that decade was due to that reduction in the cost of capital. It dwarfed the effect of raising the marginal rates.”

The capital gains cut did not go into effect until 1998 so it’s interesting that Entin thinks that accounted for “a lot of the growth in that decade,” meaning the 1990s.

It’s also noteworthy that allowing the Bush tax cuts to expire would allow the top capital gains tax rate to simply revert to 20 percent, the rate that Clinton enacted and which Entin seems to think was conducive to growth.

A close look at the numbers demonstrates that there is no policy basis for allowing capital gains income to be taxed at lower rates than ordinary income. Advocates of tax cuts for investment income have for years argued that the revenue collected from taxes on capital gains will actually rise in response to a capital gains tax cut, but the data does not bear this out. For example, capital gains tax revenue was lower in the years following Bush’s 2003 capital gains tax cut than during the Clinton years. This revenue fluctuates with the economy and does not seem correlated with tax rates.

Of course, we could give Rys and Entin the benefit of the doubt and assume they really mean that economic growth would have been even higher during the 1990s if President Clinton had not raised tax rates. But even that argument is entirely unsupported by the data. A 2008 report from the Center for American Progress and the Economic Policy Institute compares the economic recoveries following the major tax changes enacted during the administrations of Presidents Ronald Reagan, Bill Clinton, and George W. Bush. The report illustrates that the recovery under Clinton was far stronger, despite the tax increases that he enacted, than the recoveries during the other two administrations. 

Rys and Entin have both long advocated for making permanent all of the Bush tax cuts and enacting additional tax reductions. In 2010 CTJ wrote a response to arguments made by Rys and NFIB concerning the impacts of taxes on small businesses. In 2009 CTJ wrote a response to a report from Entin claiming that elimination of the estate tax would actually increase revenue.

Estimates provided by the White House show that the payroll tax cuts proposed last night by President Obama would cost $240 billion next year, just shy of the $245 billion cost of the Bush income tax cuts during the same year as estimated by Citizens for Tax Justice.

Republican lawmakers were the original proponents of a payroll tax holiday. But lately many of them have spoken out against it or are reluctant to endorse it because the President supports it. Apparently cost is not the reason for their objection, given their support of the Bush tax cuts.

The payroll tax cuts, which would go into effect in 2012 and which are the largest parts of the jobs plan announced by the President last night, have several components. The payroll tax cuts for workers would cost $175 billion, while the payroll tax cuts for employers would cost $65 billion, for a total of $240 billion.

Economists generally find that the most effective measures to mitigate a recession include programs that directly create jobs (such as Obama’s proposals to hire or retain school teachers and fix schools). Also at the top of the list are direct spending programs by the government on things like unemployment benefits (also included in Obama’s plan), since they go to the very people who are most likely to immediately spend any money or benefits they receive.

But some lawmakers oppose any and all new government spending, creating an obvious political constraint that the President has tried to navigate by proposing payroll tax cuts and other tax breaks that make up over half of the $447 billion cost of his jobs plan.

Payroll Tax Cuts for Workers: $175 Billion

As part of the tax compromise enacted at the end of last year, a one-year payroll tax cut is in effect for 2011, reducing the 6.2 percent Social Security payroll tax paid directly by workers to 4.2 percent. President Obama proposes to extend this break into 2012 and expand it by further reducing the tax paid by workers to 3.1 percent.

As we have explained before, cutting payroll taxes for workers is neither the best nor the worst possible tax measure. A tax credit that is more targeted to low- and middle-income people, like the Making Work Pay Credit, would be more effective because it would target money more towards people who are likely to spend it immediately and thereby give an immediate boost to the economy.

On the other hand, a payroll tax cut for workers is dramatically more targeted to low- and middle-income people than the other types of tax cuts that are usually debated (like the Bush tax cuts).

Payroll Tax Cuts for Employers: $65 Billion

The President’s plan would also reduce the Social Security payroll tax paid by employers to 3.1 percent for the first $5 million in wages paid in 2012. This break would go to all employers. The plan would also eliminate the entire 6.2 percent payroll tax paid by employers for any increase in a firm’s payroll up to $50 million.

Giving all companies a break for the first $5 million in wages is not likely to be effective because it gives employers a tax break regardless of whether or not they increase hiring. Economists have pointed out that many companies are stockpiling cash that they already could use to hire more workers, and a recent survey of business owners reveals that labor costs are nowhere near their main concern. In other words, only increased demand for goods and services can really prompt businesses to hire more workers. 

Some economists do believe that the payroll tax cut for businesses that expand their payroll will be more effective. But there are several reasons to be skeptical about the number of jobs that will be created as a result of this measure. First, most of this tax break will go to companies that would have expanded their payrolls anyway. Second, the payroll expansion in many cases will not mean new hires but could simply take the form of pay raises for existing employees. (This problem would be limited to a degree because the Social Security payroll tax does not apply to wages in excess of $106,800).

What businesses really need are customers. A payroll tax cut or a more targeted tax credit could help somewhat to produce more customers by putting cash in the hands of people who will spend it. But the other parts of the President’s plan, like transportation projects, extending unemployment insurance, modernizing schools, and rehiring teachers will almost certainly provide far more bang for the buck.

President Barack Obama nominated Alan Krueger to chair the White House Council of Economic Advisors on Monday and he will likely be easily confirmed. Although as a labor economist Krueger has earned many accolades for his robust work, including a seminal article defending the minimum wage, his record on tax policy is a little more mixed.

For example, in recent months Krueger voiced support for a jobs tax credit that would give companies $5,000 for every additional employee they hire. As Citizens for Tax Justice explained when President Obama proposed a similar plan, such tax credits are a poor way to encourage job creation because they inevitably go to companies who would have hired additional employees even without the credits. In fact, those companies that are struggling the most, those shrinking or unable to expand because of weak consumer demand, would receive no help from the credit.

The most controversial position Krueger has taken on tax policy was in a 2009 guest blog post arguing that a national consumption tax (specifically a 5% rate that would raise $500 billion) should be considered as one solution to the long run budget deficit. Many conservatives exaggerated the seriousness of this blog post, failing to mention Krueger’s caveat that this was “only as a suggestion for serious discussion,” and that he was “not sure it is the best way to go.”

In any case, a broad-based national consumption tax is the wrong policy because it would inevitably be severely regressive.

To be sure, Krueger has frequently stood up for good progressive tax policy. For instance, he has laid out the strong case for eliminating billions in tax subsides for oil and gas companies, opposed the ridiculous tax subsidies cities offer to sports teams and is a long time critic of the regressive Bush tax cuts.

As House lawmakers signal their intention to move forward with tax reform this fall, let’s hope we see Krueger in his new position focus on measures that will make our tax system more progressive and better for the overall economy.

Photo via Center for American Progress Creative Commons Attribution License 2.0

Republican House Majority Eric Cantor’s memo to his caucus laying out a new “jobs agenda” includes a tax break that would allow any “small business” to deduct 20 percent of its income for tax purposes. This idea is not new but was actually part of the House GOP’s proposal put forth during the debate over the economic recovery act in early 2009.

Here’s what CTJ said about this part of the House GOP plan in January 2009:

Provisions in the House GOP Plan to Help “Small Business”

The Republican plan proposes to allow a “small business” to take a tax deduction of 20 percent of its pretax income, whether the small business is a corporation or a sole proprietor. The plan defines a “small business” as one with 500 or fewer employees. It makes no distinction based on income. A “small business” making $100 million would get to deduct $20 million of its income right off the top. (Apparently, a company with slightly more than 500 employees would have an incentive to lay off staff to qualify for the tax break!)

The Republican leadership notes that “small businesses can pay up to 35% of their income in taxes to the federal government.” But for a sole proprietor to be in the 35% income tax bracket, she would need taxable income (after deducting all expenses) in excess of $372,950. And because of the graduated tax brackets, her effective rate would be much less. For a corporation to be in a 35% tax bracket, taxable income must exceed $10 million. The architects of this proposal have an expansive definition of the word “small” to say the very least.

The plan description also states that the United States corporate tax rate ranks the 29th highest (out of 30) among the major economies of the world. Corporations currently pay federal income taxes at a statutory rate of 35 percent. But the effective rate paid by corporations (the percentage of income paid in taxes after taking into account the deductions and credits and other breaks that lower their tax liability) is far lower than 35 percent. Comparing corporate taxes as a share of gross domestic product (as a share of the overall economy), the United States actually ranks low compared to other developed nations.

It’s also worth pointing out that a 20% deduction unnecessarily complicates the tax code. Congress could simply amend code sections that are already in the law (like the corporate or individual tax rates). Anti-tax lawmakers may be afraid that a simple corporate income tax rate cut might not go over too well with a public that believes large corporations got us into the current economic downturn.

Last, but not least, a business tax cut is just about the least effective stimulus measure Congress could possibly enact. The tax cuts put more money in the hands of business. But there is very little correlation between a corporation’s cash position and its plans for investment—whether expanding capacity or hiring new employees. Businesses invest in expansion when they believe there will be an increase in the demand for the goods and services they provide. If they don’t anticipate a sales increase, they won’t expand no matter how many tax breaks the federal government gives them.

Read CTJ’s full report on the 2009 House GOP economic plan here.

(Includes state-by-state figures)

A new report from CTJ finds that the compromise tax plan agreed to by President Obama and congressional Republicans would provide more than a quarter of its tax cuts to the best-off one percent of all Americans. That’s almost double the share of the tax cut that the President proposed to give the highest earners.

At the same time, the new tax plan would reduce taxes, and increase the budget deficit, by $424 billion in 2011 alone. That’s 40 percent more in tax cuts than the $301 billion tax cut the President had earlier proposed.

Read the report.

House Democrats voted in a closed-door caucus meeting on Thursday to not take up the compromise deal, which also includes a 13-month extension of expanded unemployment benefits, until changes are made to the tax provisions. Meanwhile, the Senate is debating the compromise today.

Under the compromise plan:

- The wealthiest one percent would get an average tax cut in 2011 of almost $77,000 compared to current law (under which all of the tax cuts enacted since 2001 are scheduled to expire). That’s almost triple the $29,000 tax cut that President Obama proposed to provide to the top one percent.

- Meanwhile, the lowest-income fifth of all taxpayers, those making less than $20,000 a year, would get a smaller tax cut than the President earlier proposed. This is because the GOP-inspired, 2 percent temporary reduction in the payroll tax in the compromise plan offers low-income workers a considerably smaller payroll tax reduction than the President’s proposal to extend his “Making Work Pay” payroll tax cut. The Making Work Pay payroll tax cut entirely eliminated the 6.2 percent worker payroll tax on the first $6,450 in earnings ($12,900 for couples).

The payroll tax cut agreed to by the President and GOP leaders would also provide considerably less economic stimulus “bang for the buck” than the President’s earlier proposal, because it is largest for high earners, who are less likely to spend their payroll tax savings. The compromise payroll tax cut would cost an estimated $112 billion in 2011, double the $57 billion dollar cost of the President’s earlier proposal. But we estimate that $112 billion in added borrowing would stimulate only an extra $18 billion in consumer spending compared to the President’s earlier payroll tax cut plan.

The tax bill passed by the House yesterday (H.R. 4853) would make permanent two provisions that were included in the economic recovery act and which would otherwise expire at the end of this year. One makes the child tax credit more accessible to low-income working parents. The other reduces the marriage penalty in the EITC.

The bill introduced by Senate Finance Chairman Max Baucus, which Democratic leaders plan to vote on Saturday, would make these changes permanent as well as a third change in the recovery act that expands the EITC for families with three or more children.

For more information, see CTJ's recent state-by-state figures showing how each of these provisions impacts families with children.

Call your members of Congress.

Send an email to your members of Congress.

Republicans in Congress oppose extending the augmented unemployment insurance program for even three months — unless the $12.5 billion cost is offset with cuts in spending from the economic recovery act that was passed last year, which is keeping unemployment significantly lower than it would otherwise be.

Meanwhile, Congressional Republicans are demanding that the Bush tax cuts for the richest 2 percent of Americans be made permanent, at a cost of $700 billion over a decade — and they want this to be deficit-financed.

In other words, the party that will take over the House of Representatives next year believes that $12.5 billion for the unemployed is unaffordable but $700 billion for the richest two percent is absolutely vital.

Call and email your members of Congress NOW to tell them this is outrageous and unbelievable.

The Congressional Budget Office has found that extending income tax cuts, particularly for the rich, is the least effective of all the economic recovery measures Congress has debated, while unemployment insurance is the most effective because it puts money in the hands of people who will spend it immediately.

Economists expect unemployment to remain high for a lot longer than 3 months, so Congress needs to extend the augmented UI program for a full year. Congress has always provided  augmented UI during economic downturns, and has never cut off the extra help with unemployment as high as it is today.

There is reason for hope. Reports are trickling in that Democratic leaders will force a vote on a tax bill along the lines of what President Obama has proposed: Making permanent the Bush tax cuts for the first $250,000 of a married couple's income (the first $200,000 of a single person's income). The tax cuts for income over those amounts would expire, which means the richest two percent of taxpayers would continue to enjoy some, but not all, of the tax cuts enacted under President Bush.

This proposal hardly sounds like a progressive dream, but it's the best chance for the President and his allies in Congress to take a stand against continuing tax cuts that only benefit the very richest taxpayers. See CTJ's figures comparing the President's tax plan to the Republican plan (including state-by-state figures).

Hold the Vote!

Congress needs to vote on this tax plan. If lawmakers who support tax cuts for the very rich oppose this plan, then they need to go on record opposing tax cuts for 98 percent of Americans because they are trying to protect tax cuts for the richest two percent. When Americans see how their lawmakers vote on this bill and on unemployment insurance, they will finally have a clear idea of who is represented in Congress.

Putting lawmakers on the spot in this manner is one way — perhaps the only way — to get them to do the right thing.

Speaking in Cleveland on Wednesday, President Obama reaffirmed his commitment to making the Bush tax cuts permanent for 98 percent of taxpayers and allowing them to expire at the end of this year for the richest two percent. Responding to reports that Republicans will try to block his proposal, the President said,

"So let me be clear to Mr. Boehner and everyone else:  we should not hold middle class tax cuts hostage any longer.  We are ready, this week, to give tax cuts to every American making $250,000 or less."

This is an accurate description of the situation. Republicans are threatening to vote against a bill to extend tax cuts for 98 percent of taxpayers in order to secure tax cuts for the richest 2 percent. We would not call everyone among the bottom 98 percent of taxpayers "middle class," but we certainly agree that tax cuts should not be extended for any more people.

As CTJ has noted, the Bush tax cuts were disproportionately aimed at the richest taxpayers, who happen to be the only taxpayers whose income grew wildly over the past several years. Data from the non-partisan Congressional Budget Office indicates that nearly 39 percent of the income growth from 1979 to 2007 went to the richest one percent. That's more than went to the bottom 90 percent.

The Congressional Budget Office has also studied several different measures to create jobs and found that every measure it analyzed would create more jobs per dollar of cost than income tax cuts for the rich.

And yet, some members of Congress are determined to extend the tax cuts for the rich and will even block any bill that extends the tax cuts for everyone else.

The argument Republicans most often make is that many small business owners are among the richest two percent, and ending the tax cuts for these people will mean less job creation.

This argument is a red herring. Only 3 percent of taxpayers with business income (and only 5 percent of taxpayers who rely on business income for over half of their income) are rich enough to lose any of their income tax cuts under Obama's plan. These include many partners in law firms, accounting firms, hedge funds and other businesses we don't generally think of as "small" businesses. And even for those who do create jobs, there is no connection between income tax rates and hiring decisions. Businesses are not taxed on money they pay to their employees as wages, and small business owners are not taxed on income they reinvest in their businesses.

As President Obama pointed out, the only change that the richest taxpayers face is that income in the top two tax brackets will be taxed as it was at the end of the Clinton years.

"And for those who claim that this is bad for growth and bad for small businesses," the President said, "let me remind you that with those tax rates in place, this country created 22 million jobs, raised incomes, and had the largest surplus in history."

As a previous CTJ report (with state-by-state figures) explains, low- and middle-income taxpayers actually get a better deal on average under the President's proposal than under the Republican approach, because Obama would also make permanent the improvements in the Earned Income Tax Credit and Child Tax Credit that were part of the economic recovery act.