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December 7, 2010
The Tax Deal is a Good Deal
President Obama and Congressional Republicans reached a deal which will extend the Bush-era tax cuts at all income levels while also extending unemployment benefits. There were spending reductions to match the tax cuts, and there is no plan to pay for the unemployment benefits:
* Extends unemployment insurance for 13 months. Two million workers in December, and 7 million over the next year, would have lost benefits otherwise.
* Provides a one-year, 2% reduction in employees' Social Security payroll taxes, lowering the rate from 6.2% to 4.2%, at a cost of $120 billion.
* Keeps the Earned Income Tax Credit and American Opportunity Tax Credit increases from last year's economic stimulus law, for another $40 billion in tax cuts for families and students.
* Allows business to write off 100% of their capital purchases next year.
* Sets the estate tax at 35% for two years, with a $5 million asset limit that's higher than last year's $3.5 million.
Economically, the tax cuts will help the economy, or at least not extending them would certainly hurt it. At (I think) 99 weeks unemployment benefits are too long anyway, and at that point I think all they do is reduce the incentive to find work.
Contrary to what some knee-jerk supply siders say, tax cuts do not always pay for themselves. In the long run sometimes they do, but not always, because it depends where you are on the Phillips Curve.
Politically, you don't have to go far to see that most Republicans and conservatives generally like the compromise, while Democrats and the liberal base hate it. Much, much, more importantly, Obama doesn't seem to like it.
That alone tells me it was a good deal!
Obama's Base Seems to Hate the Deal
Powerline reports that
A poll conducted by Survey USA provides a sense of the left's dismay at the tax deal President Obama agreed to. Survey USA polled 1,000 people who contributed time or money to the Obama presidential campaign. 74 percent strongly oppose the deal and 57 percent say they are less likely to contribute in 2012 to Democrats who support it.
President Obama Gets Angry!
I haven't found a video that I can post here, but I will post excerpts of the transcript of his press conference on the deal. Various news reports describe the president as "visibly angry." I have underlined the most interesting parts, where Obama describes Republicans as hostage takers and bomb throwers and says that he is itching for a fight:
THE PRESIDENT: Good afternoon, everybody. Before I answer a few questions, I just wanted to say a few words about the agreement we've reached on tax cuts.My number one priority is to do what's right for the American people, for jobs, and for economic growth. I'm focused on making sure that tens of millions of hardworking Americans are not seeing their paychecks shrink on January 1st just because the folks here in Washington are busy trying to score political points.
...Q (Chuck Todd) Mr. President, what do you say to Democrats who say you're rewarding Republican obstruction here? You yourself used in your opening statement they were unwilling to budge on this. A lot of progressive Democrats are saying they're unwilling to budge, and you're asking them to get off the fence and budge. Why should they be rewarding Republican obstruction?
THE PRESIDENT: Well, let me use a couple of analogies. I've said before that I felt that the middle-class tax cuts were being held hostage to the high-end tax cuts. I think it's tempting not to negotiate with hostage-takers, unless the hostage gets harmed. Then people will question the wisdom of that strategy. In this case, the hostage was the American people and I was not willing to see them get harmed.
,,,Q Tell that to the left -- they weren't happy --
THE PRESIDENT: Well, but that's my point. My point is I don't make judgments based on what the conventional wisdom is at any given time. I make my judgments based on what I think is right for the country and for the American people right now.
And I will be happy to see the Republicans test whether or not I'm itching for a fight on a whole range of issues. I suspect they will find I am. And I think the American people will be on my side on a whole bunch of these fights. But right now I want to make sure that the American people aren't hurt because we're having a political fight, and I think that this agreement accomplishes that.
...Q (Marc Ambinder)Just in the sense that they'll say essentially we're not going to raise the -- we're not going to agree to it unless the White House is able to or willing to agree to significant spending cuts across the board that probably go deeper and further than what you're willing to do. I mean, what leverage would you have --
THE PRESIDENT: Look, here's my expectation -- and I'll take John Boehner at his word -- that nobody, Democrat or Republican, is willing to see the full faith and credit of the United States government collapse, that that would not be a good thing to happen. And so I think that there will be significant discussions about the debt limit vote. That's something that nobody ever likes to vote on. But once John Boehner is sworn in as Speaker, then he's going to have responsibilities to govern. You can't just stand on the sidelines and be a bomb thrower.
What language! How angry! How... prickly.
The Root of Obama's Problem
Barack Obama never had any difficult election races, and is used to people adoring him. No, he's used to them fawning over him. So when the going gets tough, he has no idea what to do. He's not used to having to negotiate from a position of relative weakness and doesn't know how to do it.
Most conservatives and happy with the deal and most liberals are angry because, as Ezra Klein points out, Republicans got that the things that "they really, really wanted," wheras liberals are angry because "Obama and the Democrats didn't fight" for what they gave up but simply caved at the first opportunity. Klein tries to put a happy face on the whole thing, but he's not convincing.
Will Congress Support The Deal?
In the end the leadership of both sides can make any deal they want, but if the rank and file won't support it the whole thing collapses. I don't think we have a solid feel for where this is going, but my guess is it'll probably pass, though it may get changed a bit.
Tea Party Senator Jim DeMint opposes the deal, objecting that the unemployment benefits must be paid for, and that the tax cuts should be paid for.
But just as important, Rep. Ryan (R., Wis.), who is very influential in conservative-Tea Party circles, likes the deal, reasoning that "All things considered, I think it's the best deal we were going to get. It's clearly not a good as we would've wanted, but far better than the alternative route."
House Speaker and Minority-Leader to be Nancy Pelosi says she opposes the deal, saying that "the estate tax in the bill is a bridge too far."
Sen. Frank Lautenberg (D., N.J.) doesn't like it either: "I don't think it's a fair deal. I think a ransom was paid, and it was a very high price."
As for the rest of the Democrats, NRO reports that "Sen. Ben Nelson (D., Neb.) tells reporters that the just-complete Democratic conference lunch with Vice President Biden was "difficult," but there is "no rebellion . . . not yet.""
Conclusion
I'm happier with the politics than the economics of the deal, although extending the tax cuts for all income earners will help the economy (or keep it from getting worse). The politics count, because getting that right paves the way to future victories.
Byron York explains how the Democrats were hoist by their own petard, having boxed themselves into this position by refusing to pass a budget this year. Essentially, they outsmarted themselves and are paying the price.
The Republicans look like they're in a better spot, but that will change if Boehner and McConnell can't keep their troops in order. But the leftist Obama base is angry, and that can only be a good thing.
Posted by Tom at December 7, 2010 10:00 PM
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Comments
snake-hunter sez,
Tom - An Excellent Compromise. - reb
___ ___
Posted by: Ralph E at December 8, 2010 12:05 AM
Tom,
The GOP leadership has once again revealed themselves to be what they are: protectors of the uber rich. I agree with your analysis but never in life can the GOP leadership, w/ any credibility--not that they had any from the beginning--talk about reducing the deficit. They just gave away $700 billion over the next ten years. And, they gave it to the people who could most afford it.
The tax cuts for the top 2% of earners will not create any jobs. It will probably help elect Republicans.
Here is the thing I have never been able to get. Why do normal everyday people think that these guys are a good idea? They don't care about you. They don't care about your principals. They only care about the rich folk and about getting reelected so they can continue to protect the vested interests.
What a world, what a world.
Regards.
TLGK
Posted by: The Loop Garoo Kid at December 9, 2010 10:53 PM
TLGK - thanks for stopping by, and I am unfortunately not surprised by your response.
I could just as easily accuse you and other liberals of the sin or envy, and say that you have revealed yourselves to be simply envious of other people's money and greedy to get your hands on some of it to fit in your pockets or to go to someone else. I don't think it is moral or ethical to take from A to give to B unless A approves.
There is a major ethical problem when people think it's ok to vote themselves into another person's pocketbook to benefit themselves, but that's the essence of liberalism, isn't it?
Posted by: Tom the Redhunter at December 10, 2010 9:46 PM
Sorry Tom, but in this regard you do not seem to get it. First, everyone, including you and me, realizes that the deficit is a problem that threatens our economic future. It would therefore seem that giving away $700 billion dollars over ten years is irresponsible.
We are way past the point of implementing philosophy or political theory to address this problem. The solution will require sacrifices by everyone of every party and every income level. It will probably also require a rollback of entitlement programs although if you actually cut either Social Security or Medicare we will be confronted with a significant portion of our population who will be impoverished and unable to obtain health care.
Eliminating the Bush tax cuts for the top 2% of wage earners will create a minimal number of jobs b/c after tax dollars only create retail jobs. I think the extra money on the $50,000 for a family earning $300,000 as opposed to $250,000 is $1,500.
As for A's approval, that is a sentiment that is only tenable in the best of all possible worlds. Suppose A doesn't want to pay for national defense?
TLGK
Posted by: The Loop Garoo Kid at December 11, 2010 6:06 PM
I agree that the problem is on the spending side of the equation, and that cutting back the so-called entitlements is going to be the only way out of our hole.
That said, I wouldn't reduce benefits for current retirees or those near the retirement level. They were told their entire lives that these benefits would be there for them, and they didn't plan otherwise. But most people who are younger than, say, 40, will tell you they're not counting on Social Security at all. So I'd cut benefits for them all around.
I disagree that cutting taxes for upper-income earners won't help the economy, but the main reason I'm for it is basic fairness.
Bty, how is it that when Clinton hiked taxes those got to be the new "normal" rates and anything below that is a "cut?" The other side of the coin is that that Bush simply reduced the rates to their "normal" level.
I'm done, you can have the last word if you want it.
Posted by: Tom the Redhunter at December 12, 2010 9:08 PM
Nice to see libs like TLGK suddenly expressing concern about the deficit. What a shame he and others weren't so concerned about that when Obama was spending $Trillions over the past two years.
And I find it amusing that so many Dems are now holding up the deal that would restore unemployment benefits to those whose benefits have expired weeks before Christmas.
Where are the stories about the Dems as hostage takers, Scrooge and The Grinch?
Posted by: Mike's America at December 14, 2010 2:11 PM
