The tax cut deal struck last night by President Obama and Congressional Republicans has only one thing going for it: urgent economic necessity. If unemployment weren’t stuck at just under 10 percent – possibly for years, warns Fed Chairman Ben Bernanke – there would be no way any self-respecting progressive could support it.
How ugly is this deal? Let us count the ways. First, it forces progressives to swallow the Bush tax breaks for the wealthiest Americans. President Obama’s undoubtedly painful decision to go back (for now) on his oft-repeated promise to repeal them reflects the post-midterm political realities of divided government.
Second, it’s hugely expensive. It could cost as much as $800 billion over the next two years, even as the federal government staggers under the weight of massive deficits. It’s an inauspicious start, to say the least, to the new era of fiscal discipline Republicans promised in the midterm elections. Let’s face it: they’d rather have tax cuts. In any case, the price tag makes you wonder if America can afford this kind of bipartisan compromise.
For all that, the deal was probably inevitable given the economy’s persistent weakness. To have failed to extend the middle class tax cuts would have withdrawn hundreds of billions of purchasing power from the economy at a time when demand is insufficient to trigger new business investment. To have not extended the cuts for upper-income taxpayers would have made it difficult if not impossible for Obama to get what he wanted from Republicans: namely, an extension of unemployment benefits, a payroll tax holiday workers next year, and a renewal of business tax breaks passed this year.
Waiving the payroll tax is an important creative addition, since by lowering labor costs it gives employers a direct incentive to hire workers. Also on the plus side, the deal keeps rates on capital gains and dividends low, and includes “direct expensing” of business investments.
President Obama clearly views his tax provisions as stimulus by the only political means available to him, given public – not just Republican antipathy – to more government spending. He raised the stakes yesterday, warning that America has arrived at another “Sputnik moment” and could be eclipsed by rivals if we can’t turn the economy around. The President also showed little patience with liberal purists who are loudly bewailing, for the umpteenth time, their “betrayal” by a Democratic President.
“Sympathetic as I am to those who prefer a fight over compromise, as much as the political wisdom may dictate fighting over solving problems, it would be the wrong thing to do,” he said. “The American people didn’t send us here to wage symbolic battles or win symbolic victories.”
It’s true that a majority of the public consistently has opposed tax breaks for the rich. But it’s also true that Americans, and especially the independents who propelled the Republicans’ midterm gains, have even less appetite for political brinkmanship designed to score partisan points. The U.S. left is always up for a bracing round of class warfare, but voters aren’t likely to reward tactics that could result in slowing down the recovery and raising their taxes at the worst possible moment.
The good news is that the extension is only for two years. That gives time for a reconsideration of the whole ungainly package in 2012, by which time the jobless rate presumably will have fallen back to earth. That allows room for a more constructive debate next year over a sweeping tax overhaul designed to promote growth, long-term fiscal stability, and fairness. It also puts the question of how to restore a progressive tax code smack in the middle of the next presidential elections, where it belongs.
Photo credit: David Reber