These items include proposals to extend the one-year payroll tax cut for most American workers that has been in effect this year. The temporary two-percentage-point cut in Social Security and Medicare taxes was worth about $900 to the average US household, meaning an effective tax hike of that amount starting January 1, 2012 if the program is not extended.
Extended unemployment benefits for the long-term jobless also expire on New Year's Eve, meaning that the entire working class, employed and unemployed, will face a substantial cut in income. An estimated 2.1 million workers will exhaust their unemployment benefits by mid-February unless a further extension is passed by Congress and signed into law by Obama.
The Obama administration has called for extension of both the tax cut and extended unemployment benefits, citing the danger that expiration could undermine consumer spending and plunge the economy back into full-scale recession. JPMorgan Chase recently estimated that the expiration of the payroll tax cut and extended benefits would subtract 1.5 to 2 percent from 2012 gross domestic product growth.
Congressional Republicans are opposed to extending unemployment benefits and ambivalent on the payroll tax cut extension. The two measures combined will cost $168 billion, and under congressional budget rules must be offset by budget cuts or tax increases elsewhere.
In a speech in New Hampshire Tuesday, Obama called for extending both measures, while proposing a sweetener for the Republicans: a $69 billion cut in the employer portion of the payroll tax, also for one year. The combined effect of the payroll tax cuts will be to reduce revenues for Social Security and Medicare by nearly $200 billion, undermining both programs just as they are under unprecedented attack by both parties.
Two other major fiscal measures are expiring at the end of the year: the annual adjustment of the Alternative Minimum Tax so that it doesn't affect a better-off layer of middle-income families; and an annual deferment of scheduled cuts in reimbursements to doctors who treat Medicare payments. In each instance, measures that were adopted for the purpose of deficit-reduction have been repeatedly postponed for fear of the reaction in sections of the middle class.
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