Senate Lays the Groundwork for Fair Deficit Reduction
July 26, 2012 | Patrick Reimherr and Elizabeth Lower-Basch
On Wednesday, the Senate approved a one-year extension of the Bush-era tax cuts for those making under $250,000 a year -- 98 percent of all Americans. The passage of the Middle Class Tax Cut Act (S.3412) marks a significant step toward the principle of a balanced approach to deficit reduction, with new revenues as well as spending cuts. According to the Joint Committee on Taxation, the bill would save the U.S. nearly $1 trillion over 10 years.
The bill also preserves many improvements that have been made over the last decade to programs helping low- and middle-income Americans support their families. The bill maintains the Bush and Obama expansions of the Child Tax Credit that have made the credit available to low-income workers and pulled millions out of poverty. It also preserves the expansion of the Earned Income Tax Credit for those with three or more children. As recently highlighted by the Center on Budget and Policy Priorities, these programs successfully encourage work, while reducing poverty and improving child well-being. The bill also extends the American Opportunity Tax Credit, which helps make college more affordable.
In January, unless Congress agrees on an alternative approach to deficit reduction, numerous government programs will face large, indiscriminate, automatic funding cuts. If this happens, a range of programs from elementary education to those that support the most vulnerable Americans will all be cut without regard to their importance or effectiveness. What’s more, these cuts will have a disproportionate effect on the lowest-income families, those that have already experienced the worst impacts of the economic downturn and for whom a middle-class existence is being pushed further and further out of reach.
By passing the Middle Class Tax Cut Act, the Senate rejected the idea that we should take a hatchet to programs we all value while not asking for one dollar from the top 2 percent of Americans. Instead, the Senate supported a balanced approach to deficit reduction—one that both raises revenue to a sustainable level and makes thoughtful choices about spending priorities. This is an important precedent policymakers should carry forward in the coming months.