First a Pay Freeze, Now a Tax Hike?

The proposal negotiated by President Obama and congressional Republicans this week to extend Bush-era tax cuts would provide tax breaks for most Americans. But the New York Times reports today that one group of people--government employees, including some federal employees--could see their taxes go up as a result of the deal.

The Obama plan would end the Making Work Pay tax credit, which provides a deduction of up to $400 for low- and middle-income workers. Instead, the plan provides for a 2 precent reduction in the Social Security payroll tax for employees at all income levels.

But millions of civil service workers at all levels of government don't pay Social Security taxes. That includes (as of 2007), 600,000 feds who are still covered by the Civil Service Retirement System. (Most federal employees hired after 1983 are covered under the Federal Employees Retirement System.) Some CSRS employees could lose the existing tax credit and get no benefit from the Social Security cut.

"It makes so little sense that you have to hope that the people who negotiated this didn't think it through," Robert McIntyre, director of Citizens for Tax Justice, a public interest group aligned with labor unions, told the Times. "And when they do think it through, they'll realize it's not fair. It would be cruel not to do something about it."

House Democrats already have expressed their displeasure with the tax plan, voting this morning to approve a resolution stating that they're unwilling to bring the package to the House floor without significant changes.