Tax deal: Rich aren't the only ones who benefit

By Tami Luhby, senior writer

NEW YORK ( -- Sure, the wealthy will make out like bandits in the tax-cut deal, but middle-class and lower-income folks will reap benefits too.

Much of the attention since the deal was announced Monday night has been focused on extending the Bush tax cuts for the rich and minimizing the estate tax.

But other provisions in the $800 billion deal, including the payroll tax holiday and child tax credit, will greatly assist ordinary Americans. And those who are unemployed will benefit from an extension to file for federal jobless benefits through 2011.

"Overall, it's very much worth doing," said Chuck Marr, director of federal tax policy at the left-leaning Center on Budget and Policy Priorities. "Paychecks will go up and that's very important for the economy."

Many people will find the payroll tax holiday, which shaves 2 percentage points off the 6.2% levy on workers, more generous than President Obama's Making Work Pay tax credit, Marr said.

For instance, a family earning $70,000 would see $1,400 more in their paychecks if the deal is approved. That's $600 more than the current Making Work Pay credit.

Meanwhile, those with children in college could continue to collect a tuition tax credit of up to $2,500, instead of seeing the credit fall to its pre-Recovery Act level of $1,800. Also, those who don't pay federal income tax could continue to qualify for a refundable credit of up to $1,000.

For lower-income Americans, the $1,000 child tax credit provision would offer a big financial boost. The deal would continue to allow those who earn as little as $3,000 to receive the credit, assisting 10.5 million families, according to the White House.

Extending the lower threshold established by the Recovery Act means that a mother of two earning the minimum wage could keep claiming a credit of $1,725, rather than see it fall to $263, said Elizabeth Lower-Basch, senior policy analyst at the Center for Law and Social Policy, an advocacy group known as CLASP.

"A thousand dollars is a significant amount of money if you are at the minimum wage," she said.

The tax cut deal also maintains a Recovery Act measure that provides additional assistance worth, on average, $600 to low-income families with three or more children who claim the Earned Income Tax Credit.

And, of course, everyone would see their tax brackets remain at the lower rates established by the Bush tax cuts in 2001, though top earners would see the largest boost in after-tax income, by percentage, according to the Tax Policy Center.

If the Bush tax cuts were to expire, the middle class would have up to $200 more in taxes taken out of their paychecks starting in January, said Curtis Dubay, senior policy analyst at The Heritage Foundation, which advocates for free enterprise. And lower-income folks would see their tax rate jump to 15%, from the current 10%.

"There's really nothing to complain about" for lower-income and middle-class Americans, Dubay said.

No money for safety net

Though the tax deal does benefit people across the income spectrum, it still doesn't sit well with some left-leaning advocates. They don't appreciate that Republicans are fighting for tax cuts for the wealthy while at the same time arguing the federal government doesn't have the money to extend certain safety net provisions.

The social service programs that ended this year include the $5 billion Temporary Assistance for Needy Families emergency fund -- which provided subsidized employment, cash grants, food and housing assistance -- federal child care subsidies, and a $25 weekly supplement for the unemployed.

"It's not that it doesn't share the goodies. It's that it doesn't share the pain," said Lower-Basch. To top of page

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