- The Washington Times - Friday, February 13, 2009

The Congressional Budget Office says President Obama‘s giant economic recovery bill will actually hurt Americans’ paychecks in the long run, even if the plan’s tax cuts start out putting an extra $13 a week in most worker’s pockets.

Building on a report issued last week, the Congressional Budget Office, Congress’s official scorekeeper, said the flood of spending will boost the economy in the short term and will create new jobs. But over 10 years, extra debt will “crowd out” private investment, leading to a lower gross domestic product, which would hurt workers’ wages.

“The reduction in GDP is therefore estimated to be reflected in lower wages rather than lower employment, as workers will be less productive because the capital stock is smaller,” CBO said in a report issued Wednesday night, although it did not say how much damage would be done.

But for now, Alyson Jacobson, 42, said she’ll take the $13. She said she’d spur the economy buying haircuts for her four young children when the tax cut kicks in this spring.

“I’ll have to save up for two weeks,” the social worker in Bowie said of the anticipated spending spree. “It could go into more fruits because fruits are getting so expensive.”

Her husband’s pay is expected to get a $13 boost, and the couple could pocket expanded child tax credits under the bill that leaders of the Democrat-led Congress scrambled to finalize Thursday.

The child tax credit will put about $1,000 more in tax credits in the pockets of qualifying families with at least three children. The bill would expand the 15 percent credit to every dollar earned over $3,000 from the current $10,000 threshold.

As for the economy as a whole, CBO said in the short term, it will be better off with spending; but over 10 years, the economy would at best break even and could actually be two-tenths of a percent lower than if Congress did not act.

Republicans, who have fought Mr. Obama’s stimulus plan, said numbers confirm their fears.

“This is what happens when one party negotiates behind closed doors - you end up with bad legislation,” said Rep. Dave Camp of Michigan, the top Republican on the House Ways and Means Committee, which writes tax laws. “What the Democrats are asking the American people to do is buy a $1.1-trillion-dollar plane that barely gets off the ground before crashing. The ones left inside that wreckage will be the American worker and taxpayer.”

Drew Hammill, spokesman for House Speaker Nancy Pelosi, California Democrat, blamed the bulk of the debt problems on former President George W. Bush and said they know they’ll need to take more action to produce good-paying jobs.

“We know the deficits created by the previous administration are going to continue to have an impact on the economy,” Mr. Hammill said. “We know that we can’t afford not to act with the legislation that has been finalized, and we know there’s going to have to be other pieces of legislation to address other economic concerns.”

The CBO report said the new spending would create or save between 800,000 and 2.3 million jobs in 2009 and by 2010 would account for between 1.2 million and 3.6 million jobs.

The White House did not comment on the report. Mr. Obama has predicted that his plan could create or save up to 4 million jobs.

The extra $13 a week will show up in pay this spring when the withholding formula is adjusted. Starting next year, the credit will add about $7.70 per week to individual paychecks.

“It’s almost pocket change,” said Cindy Hockenberry, an accountant and research coordinator with the National Association of Tax Professionals. “To be quite honest, amounts that small I don’t think [taxpayers] are going to feel it.”

The tax relief, including business tax breaks, adds up to $275 billion, or about a third of the $789 billion package. The rest of the money - $515 billion - is spending.

The Jacobsons also could be among the 23 million middle-class families to benefit from a suspension of the alternative minimum tax (AMT), which would otherwise wallop families making as little as $50,000 a year with a 26 percent or 28 percent income tax rate.

The AMT was adopted in 1969 to make tax-sheltered wealthy Americans pay at least some income taxes. But it was not indexed for inflation and, over time, hit middle-income taxpayers if not forestalled by temporary “patches” passed annually by Congress. This year’s patch was included in the stimulus.

The tax cut - which is supposed to help 95 percent of Americans, including low-income workers who do not earn enough to pay income taxes - would give single workers up to $400 a year and families up to $800.

The tax credit phases out completely for workers earning more than $100,000 a year and couple earning more than $200,000.

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