When President Bush and a Republican Congress cut income taxes for everyone who paid them, most Democrats were opposed. Once the legislation passed, though, they quickly realized that as a matter of politics they had to support the bulk of the tax cuts. They could not be seen to oppose the reduction in tax rates for middle-income workers, or the expansion of the child tax credit. They remained hostile, however, to the tax cuts on dividends, capital gains, and high incomes. They ran two presidential campaigns on a platform of extending the “good” tax cuts while letting the “bad” ones expire.
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President Obama has now moved into the second phase of capitulation. He has agreed to delay any tax increases, on anyone, for at least two years. The top marginal income-tax rate will stay at 35 percent; the dividend and capital-gains tax rates will stay at 15 percent. Over the next two years, the estate tax will be lower than it has been for almost any part of the last decade. The president has also agreed to an additional reduction in tax rates: Payroll taxes will also be temporarily reduced. And his own administration’s best policy proposal, allowing businesses to deduct the full cost of all investment expenses over the next two years, is also included in the deal.
What liberals got out of the deal was the extension of some of their favorite tax credits and, above all, a 13-month extension of federal subsidies for unemployment benefits — with no compensatory spending cuts. But the deal is still worth taking: If it won’t do much good for the economy, it will avert a serious blow to it.
It is possible that Republicans could have gotten an even better deal next year, since their numbers in Congress will increase in January. But that would have left them having to cut taxes retroactively and left households paying first higher and then lower taxes. Acting now reduces both uncertainty and volatility. Republicans can now spend the next two years advancing spending cuts and long-term tax reform.
White House aides are talking big about renewing the debate over tax rates in 2012. But they had to make a deal on unfavorable terms because, when the issue is looming tax increases, the public trusts Republicans more than Democrats. If Obama is unwilling to have this fight in 2010, why will he be more eager in a year when he is on the ballot? Consider these claims to be sweet nothings from the administration to a Left that feels jilted. And consider the debate over whether Obama is seeking reelection settled.
CORRECTION: The original version of this editorial contained an inaccurate statement that the extension of unemployment benefits would make recipients eligible for three years of payments; in fact, 99 weeks remains the cutoff, but federal support for the extended benefits will be extended for another 13 months.
That is a bad capitulation. And for 13 months. Insane.
There is no way that taxe rates would be raised. Instead they should
Be made permanent.
A rep house can author the bill. In Jan. And see just how many
Dem senators or admins would vote against it after everyone receives
Their first pay check. ... You know, the one that doesn't have an increase
Just the rate after expiration of the mean bush cuts.
Why does President Obama (Dude in Chief) engage in childish "false dilemma" debates any time he steps to a microphone?
It must be asking the DIC too much to accurately describe the views of his political opponents when they are his "enemies".
At the presser yesterday, DIC kept drumming the false drum that the GOP wants "permanent" extension of tax cuts for "millionaires and billionaires" and Dear Leader was standing in the door of the IRS protecting "the middle class". No you dope, the GOP wanted a temporary reprieve from a tax hike that was set to occur in 3 weeks.
What's more, the DIC throws in the urgency of the matter and implores Dems and Reps to put aside petty differences for the American people. For starters, the hall monitor scold bit is tired. Starting at the 8:40 mark on CSPAN, our DIC reminds Congress and the media of the solemn duty they have to get this done. Well thanks Barry, nobody knew what the purpose of the House and Senate was until now! It takes an Adjunct Professor from Chicago to set us straight.
Second, he's been the DIC for 20 months and the evil GOP could do nothing to stop his plans for much of that time. If a permanent extension for "workin' folks" is so important, why was it not on his agenda? Answer: It was never a priority.
What part of this do you people not get? Or are you trying to protect the RINOS who voted for this & sell it to us? What part of NO NEW SPENDING was not understood? This was total loss for GOP they caved & added more spending & got nothing in return. It is not like they got the tax breaks made permanent or something. geez y'all think we are stupid.
I read that the combined cost of this 'deal' is 300 billion dollars. Since the extension of tax rates changes nothing, I am concluding that the bulk of that 300 billion will be extending unemployment payments (please correct me if I'm wrong, or if lefty math was used and is calculating lost government 'income' due to taxes not going up).
If this is correct then I believe Obama has scored quite a victory here. He has made the Republicans, fresh off a winning election period, into Big Government enablers.
The conservative base and fiscal-minded independents that gave them their victory one month ago wants smaller government, less entitlements, and reduced debt. This 'deal' does the reverse of all of those things and this is a victory?
Individual Income Tax. The GOP got slightly better than the status quo ante on federal individual income tax for the next two years.
Estate Taxes. The GOP got a better deal on the federal estate and generation-skipping transfer taxes than I anticipated. The top marginal rate for the federal estate, gift, generation-skipping, and individual income taxes is now at 35%. If we had done nothing, the estate, gift, and generation-skipping transfer taxes would have all gone back to 55%. Further, most states that repealed their estate taxes had legislation that resurrected their state death taxes upon a resumption of the state death tax credit as it existed on 12/31/2000. Consequently, this new legislation is not only a federal transfer tax cut, it is also a state death tax cut. This is a huge victory for the GOP that eluded them in 2000 when the best deal they could cut with President Clinton was a proposed reduction in marginal estate tax rates from 55% to 44% that was ultimately rejected by the Republican Senate leadership of that time.
Unemployment Compensation. The GOP would have eventually capitulated on this issue if the Democrats had been uncompromising. I view this quid pro quo to the Democrats as a price well worth paying.
We should recognize that the Congressional GOP appears to have done something right. All too often, ordinary Republicans assume that our leaders are incompetent and will be outflanked by the Democrats in Washington. At this moment, it appears as if they did the right thing given the political realities they face. I congratulate them.
It is evident that Barack Obama wants to run for a second term and has effectively announced this intention. By providing for a two-year extension of current tax rates on income, dividends and capital gains, Obama intends to yield on a further extension of the Bush tax rates in 2012, perhaps as an "October Surprise," in an effort to defuse his well-deserved reputation as a high tax president. If this succeeds with the "mushy middle," otherwise known as "independents," and results in the President's reelection, then this nation and "those who carry the water, rather than drink it" will be severely made to pay for Obama's "compromise" of today. The current agreement includes bad policy regarding the estate tax and a one-year reduction of two-percentage points for the employee's share of Social Security taxes will do little for the economy, unless the 2%-reduction, much like the Bush tax cuts, becomes permanent.
I agree with Charles Krauthammer's assessment of this deal - it's a short-term win for Republicans and a long term-win for Obama. The "stimulative" features of the deal will pump more money into the economy (although in haphazard and front-loaded ways that will have little to no long term benefit) and make 2011 more bearable. By 2012, unemployment should ratchet down a few point (*maybe* it might hit 8%) and the tax-hike/rate-extension debate will be a small part of the 2012 campaign with Obama using his standard line of tax-rate extensions for the middle class and tax-hikes for the "rich". If the GOP and Obama can get any traction on the deficit, that's a credit in the Obama column.
Thus, this deal makes Obama's prospects for 2012 much better and political life of his congressional "allies" a lot harder...
I agree that this is a reasonable compromise. But it amazes me that anyone thinks extending unemployment is good for the economy. I have a relative who is waiting until his benefits run out before he looks for work. As long as they keep extending the benefits, he will hold off looking. Although the income is less than he made before, he has all his time available to do other things now, so it is worth it to him. There have to be millions of other people who follow the same logic.
An additional 13 months of unemployment. That number is a little bit of a shocker to me. The fact that Obama would ask for an extension that long is somewhat disturbing.
If is the deal on the table and if it is take it or leave it, I take it. But I'm having trouble fathoming 13 months, I thought it was a typo when i fist saw it, surely they mean 13 weeks, but nope.
Barring a terrorist strike, the unemployment rate will determine Obama's chances for re-election, and unemployment will remain high because of Obamacare. Its cost and regulatory burdens hit small businesses the hardest, and it's small businesses that aren't hiring; moderate to large companies are mostly flush with cash and, in the short term at least, they can absorb the shock of Obamacare without sacrificing workers. The tax cuts will help everyone but I doubt they'll spur employment. And, while I'm at it, I'd add that low interest rates aren't hurting the economy but they aren't helping it either ... the large companies are rich and don't need the loans, and the small companies won't risk adding employees with insurance mandates and fees lurking around the corner.
I really wonder whether Obama knew the damage he'd do to his administration and his party by ramming his health care plan down everyones' throats. Me, I'm investing in the stock market and hoping for more passive gains ... and expecting the Mother Of All Jobless Recoveries.
This compromise will likely have the same effect on jobs creation in the next 24 months as the uncertainty about looming tax increases has had on the past 24 months: Business will be unable to make any long-term plans, so they'll forego making any long-term decisions (like hiring).
I oppose tax increases, but even increasing the taxes on a permanent basis would be better for jobs growth than this temporary solution that continues the uncertainty.
Given the practicalities, I would have rejected this deal.
For starters, the class warfare rhetoric - of which we here are all so sick, and which was the ONLY arrow in a dwindling progressive quiver - was falling on deaf ears with less conservative voters. It simply was not working.
As for not working, neither are millions of Americans currently receiving unemployment benefits. And permitting them to receive them for 99 total weeks, with a possibility of 13 weeks more, is palpably counter to the objective of getting them back to work.
IF (big if) the economy improves, and jobs are to be had, they will be obtained by people currently working seeking better opportunities or by those currently under-employed or working only part-time. VERY FEW of the unemployment recipients will trade their increased leisure for work.
That is simply an irrational choice to expect them to make. If they can get paid for not working, they will make sure to maximize the time frame of that arrangement.
Once again, it appears that GOP politicians were afraid of their own shadows. Notice how NOT ONE GOP politician has bothered to make a public explanation of why continued extensions of unemployment benefits are bad FOR THE RECIPIENTS. Opposing such measures requires a little fortitude, sure, but it also requires communication skills that most GOP politicians simply do not possess.
I don't know - I think it's pretty easy to explain to people how extending benefits extends the length of time people remain out of work. Is that any way to help people?
It is if increasing the number of people dependent on government is the underlying objective.
This deal is bad primarily for those people for whom my heart bleeds that are currently out of work. And given the current political situation, I can think of only one reason why the GOP should have felt pressured to accept it.
I suppose if Obama was willing to sign on to an extension of marginal tax rates for the highest earners, but the GOP would not budge on extending unemployment benefits, that would create a poor dynamic for the GOP. Hence, the need to be able to speak about economic issues without a staffer writing the script or providing the data.
To repeat, though - my primary objection to this deal is that it makes things worse for the very people who are in a precarious situation - those without work in an anemic economic environment.
They have just been shafted. No surprise - the government pees down the backs of the most vulnerable every day. Too bad the GOP felt compelled, by lack of cogent argument, to go along with that kind of rain storm.
All this is, is the stoppage of the trainwreck of a tax increase in the midst of what is still a recession.
Any of you who think the UC extension wasn't going to happen are living in a dream world. I hear you on spending, but that comes once the GOP actually controls the gavel - they don't now if you haven't noticed. If you want to hand the democrats a hammer to go after the GOP as being heartless right off the bat, when there are plenty of spending fights to come - please just go away and be quiet.
While this will help with the economy the bigger issue is regulation which is still bad. Businesses will still be looking at Obamacare and the stepped up regulatory harassment coming from various federal agencies. Krauthammer is wrong in the tone of his prediction.
Allowing the tax increase would have just about cemented his defeat. So he is on the fringe of being back in the game. But if he can't get off the strangle business with regulation mode, his prospects aren't much better. And he cannot eliminate Obamacare - so he still in real trouble.
Madisonian - you surprised me with your post. I hear you in theory - in the real world everything you suggested on UC is wrong - you can't get through the noise explaining why extending it is bad, as like you I know it is.
Politics is knowing which hill to die on - in the past the GOP would never pick any hill. I get the sense that is no longer the case. The tax cuts were on their side so the Dems were forced to pick. On UC, that is a hill guarenteeing death.
Let's pick some hills where we have some opportunity to win and let's work on developing a long term battle over entitlements with Ryan and Rivlin's framework - all while carpet bombing Obamacare, which is still wildly unpopular.
For those of you who think the unemployed 'like' to be that way - obviously, you have not been unemployed! Last year, I would much rather have been working, and went everywhere I could to get a job paying anything - but I could not find work. Thankfully, I've been able to find some contract work for now.
Do I prefer UE benefits to not being able to pay bills and/or being homeless? You bet. Do I prefer them to not working? No way.
I do have one suggestion - the outsourcing/insourcing of work to foreigners be stopped. That accounts for many IT jobs being lost to Americans.
Perpetuating dependence on the government is not being heartless, it is base cruelty. Nobody should be asked to go away and be quiet. The Left demands the silencing of dissenting opinions.
If there are 75 million workers in this country, 10% are unemployed and receive an average unemployment payments of $400 for 99 weeks you get $297 billion. I'll allow 3 billion for "overhead".
There was an opportunity to lower the tax rate for the $250 K and less earners by an accross the board 5%, hold $250 - 10 million group to the current rate and raise the rate on the greater than 10 million tier by 3-5%. This would have been a win win for both sides of the aisle. It was never floated or discussed as a comprimise and was a failure of imagination. The UI could have been extended only 6 months, AMT could have been recalced for COLA and the death tax could have been eliminated.
20% of a million is much more than 2o% of 100,000 yet even that additional tax is not enough for those who love the class warfare angle.
What is the moral construct which adds that the rich shall be punished for being rich? What is ethical about having them pay more tax in absolute terms and then pay a greater percentage of their reward as well?
PDevlin, I would like to agree with you about stopping outsourcing. But you can't make that go away by legislation, without huge repercussions. I know that much, despite not being an economist. I would like to see NR address this issue more, though. The few times it has been addressed, the gist of the writer's opinion has been "it does cost some people their jobs but overall is good for Americans." That conclusion seems to greatly underestimate the impact to American workers.
