The tax compromise of 2010: What we\’ll be getting


As the lame-duck session of Congress ends and the new Republican majority gets ready to pounce on healthcare reform the way Sarah Palin pounces on deer, the Obama Administration has compromised on the tax cut dilemma with Republican leadership.

The White House sat in a room with Republicans and Democrats and managed to negotiate an actual compromise. The final deal includes some things that liberals will like and some things they won\’t like, and it includes some things conservatives will like and some things they won\’t like. This, readers, is bipartisanship. With no regard for reality, deals are made, and generally working people suffer. I will not, however, complain about President Obama\’s and the Democratic Party\’s miserable history of negotiating as I did in an earlier column.\"\"

Instead, I will say what no one on the left is willing to say. These tax cuts were a special legislative case, as their scheduled expiration forced action, but, to be optimistic, this specific deal suggests that the next two years might be a bit more productive than some of us have been predicting. Why? Because this deal could\’ve been alot worse.

Here\’s what\’s in the bill:

The Bush Tax Cuts will be extended for all taxpayers, including the wealthy, for two years. However, for the next two years, estates up to $5,000,000 will be protected from the estate tax, and the tax rate for the few estates that are taxed will be 35 percent. That\’s worse than the 2009 estate tax ($3.5 million exemption, 45 percent rate), though better than this year\’s \”no estate tax at all.\” The difference in expected revenue between the 2009 levels and the compromise levels is $10 billion or so. This component of the deal alone has enraged conservatives, from Charles Krauthammer to Mike Pence and Rush Limbaugh. Hence, the deal could\’ve been worse.

The Earned Income Tax Credit, the Child Tax Credit and the American Opportunity Tax Credit were all included in the stimulus package, but set to expire this year. All of them will be extended. This will cost the taxpayer $40-50 billion. Liberals can look at this as stimulus, which it is, and either be happy or disgusted. Happy because the tax cuts will have a stimulative effect, or sad because the stimulus is so weak and therefore \’barely worth the money\’. Conservatives appear to be colorless to the extension, but pretend it\’s a major giveaway.

Cutting taxes is always popular … at least, now it is. – Barney Frank

Rather than extending the administration\’s Making Work Pay tax credit for two years, which would\’ve been worth about $60 billion a year, The President and Republicans agreed to a one-year cut in the payroll taxes paid by federal employees, which is expected to raise $120 billion in 2011. That\’s a much stronger boost over the next year, and interestingly, the cuts tend to get extended.

In perhaps the most important part of the deal, there\’s going to be a 13-month extension of unemployment benefits at a cost of $56 billion. Back when Democrats weren\’t spineless (dates back to the Lyndon Johnson era), extensions of unemployment insurance were considered to be a blatantly obvious approval by Congress, much less a victory. Even a few Republicans would always support the measure. The spectrum has clearly shifted right over the past 40 years–the \’center\’ is no longer in existence.

So is this a good deal? It\’s arguably the best deal the White House could get before the January 1st deadline. There\’s some new stimulus in the form of the payroll-tax cut and the expensing proposals. The older stimulus programs that are getting extended — notably the unemployment insurance and the tax credits — probably would\’ve expired outside of this deal. The tax cuts for income over $250,000 are a bad way to spend $100 billion or so, and the estate tax deal is really noxious.

The underlying factor in this deal is that it\’s terribly bad news for the federal deficit. After voting for this deal, which will add a total of $856B to the deficit over the next two years, no one can call himself a deficit hawk. The White House and Congress are arguably right to make the deficit less of a priority than economic recovery. However, everyone in Congress who has claimed to be concerned about the deficit and voted for this omnibus is a red-faced hypocrite that deserves to be vilified as such by the media.

Speaking of economic recovery, this is clearly not enough legitimate stimulus, and it\’s not well targeted. The deal amounts to the White House throwing some bad money after good. But the end result is between $200 and $300 billion more in tax breaks, tax credits and unemployment insurance than there would\’ve been if not for this deal. That\’s better than nothing — or to be more specific, better than backsliding. Whether the deal passed or didn\’t pass, more Americans would\’ve been net winners than losers, and that\’s what makes this situation far better than what anyone could\’ve predicted.