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Treasury Notes

 Five Questions with Michael Mundaca

By: Erika Gudmundson
12/17/2010

In our second installment of “Five Questions,” we interviewed Michael Mundaca, who serves as Assistant Secretary for Tax Policy. We asked him about the tax cut/unemployment insurance package passed this week.
 
 
 
 
 
 
What are the benefits of this agreement, besides the extension of the tax cuts?
There’s a lot of great stuff in this bill in addition to the extension of the middle-class tax cuts. 
 
The bill delivers a two percent payroll tax cut for over 155 million workers, which will provide tax relief totaling about $112 billion next year.  In addition, it extends unemployment benefits, preventing an estimated 7 million workers from losing their benefits over the next year as they search for jobs. 
 
The agreement also extends the $3,000 refundability threshold for the Child Tax Credit established in the Recovery Act, preserving a tax cut for 10.5 million lower-income families with 18 million children. 
 
It also continues enhancements to the Earned Income Tax Credit made in the Recovery Act, which will provide an average tax cut of $600 for families with three or more children, and reduce the “marriage penalty” for working families. Together, these enhancements to the EITC will help 6.5 million working parents with 15 million children. 
 
In addition, the Recovery Act’s American Opportunity Tax Credit – a partially refundable tax credit that provides up to $2,500 to help more than 8 million students and their families afford the cost of college – is extended. 
 
The bill includes President Obama’s proposal to temporarily allow businesses to expense 100 percent of their investments in 2011, potentially generating more than $50 billion in additional investment in 2011, which will fuel job creation.  And finally, the bill extends the “section 1603” Renewable Energy Grants program, another successful Recovery Act provision, which is helping to support tens of thousands of jobs in the wind and solar industries.
 
How will this law grow the economy and create jobs?
This bill delivers a payroll tax cut, incentives for business investment, and an extension of unemployment benefits.  Each of those measures will provide a powerful boost for the economy and jobs. In fact, a number of economists are already raising their forecasts for growth and job creation because of this agreement.  Some independent analysts estimate that it will add more than one-and-a-half million new jobs to the economy.  Moreover, the bill provides tax relief targeted to working families.  The President fought successfully to maintain the Recovery Act’s provisions regarding the Child Tax Credit, the Earned Income Tax Credit, and the American Opportunity Tax Credit.
 
How do the provisions in this bill that encourage business investment work?
The President recognizes that the private sector is the most important driving force for creating jobs and building a strong and sustainable recovery. And that’s why he proposed and then fought for provisions in this bill that will deliver a boost to businesses that invest in their companies and their workforces. 
 
This bill accelerates tax breaks for business that invest in manufacturing equipment and other assets they need to grow for the long-term.  Businesses will have an immediate incentive to invest today.  This will help propel our economy forward and strengthen job creation.  And because the provision simply accelerates future tax breaks that would ultimately have been paid in later years, it won’t add significantly to our long-term deficits.
 
Will the payroll tax holiday harm the Social Security Trust Fund?
It is very important to know that this bill will have absolutely no impact on the Social Security Trust Fund.  The Fund will be made whole dollar-for-dollar with general budget revenues.
 
Will this law impact our deficit?
This bill is about accelerating growth, which is a necessary first step in achieving meaningful deficit reduction.  But we must do more and we will do more, as the President has laid out in successive budgets.
Posted in:  Five Questions
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