The tax deal cut yesterday between the White House and congressional Republican leaders will have a complicated legacy that’s a bit difficult to anticipate at the moment.
That’s assuming it’s approved by Congress. Bernie Sanders is already promising a Senate filibuster on the deal, whose very existence is offensive to many progressives, and RedState’s Erick Erickson is calling for opposition from conservatives. But it will probably get through these obstacles, if only because about the only political force that actually supports the alternative—the expiration of all the Bush tax cuts along with a major lapse in unemployment insurance benefits—is the deficit-hawk Democrat contingent, who have limited clout in Congress at the moment.
The revolt against this deal on the left will likely generate more heat and noise than actual votes. Many progressives are already furious at Obama for telegraphing his willingness to cut a deal before it was necessary, and for his generally uncombative pubic stance, which they interpret as evidence the President didn’t learn much from his first two years in office. Others simply want to register as strongly as is possible their rejection of the ideology supporting the Bush tax cuts, including the estate tax reductions that are incorporated into the compromise.
As scrutiny of the deal sharpens, however, the extension of increases in refundable tax credits aimed at the working poor in last year’s stimulus package may get some attention as well. These are benefits that Republicans have been increasingly denouncing as “welfare,” so this is perhaps a victory-in-principle for progressives.
Ultimately, the political impact of the deal will probably be measured by its impact, if any, on the economy. Will the payroll tax holiday provide some critically timed stimulus? Will investors be impressed by the bipartisanship of it all? And would the alternative of letting the tax cuts expire and work in Washington grind to a halt have guaranteed the much-feared “double-dip recession”?
Matt Yglesias stresses these short-term economic consequences in his own reaction to the deal:
[T]his has partially set my mind at ease about the prospects of a GOP strategy of economic sabotage. The tax policy the right wants, though in general bad for the country, is not bad for short-term economic performance. And the concessions they were willing to give Obama in exchange for boosting the incomes of rich people are expansionary in the short-term. So the terrain here exists well within the range of “normal” politics where conservatives want lower taxes on rich people. This is kind of nutty in my view, but it’s a deeply held article of faith on the right and not some ad hoc effort to sink the economy or anything.
Ezra Klein, however, notes the limited stimulative effect the deal is likely to have:
Most of the money just keeps programs that are currently in effect from expiring, so in some ways, it would be more accurate to say that this money is anti-contractionary rather than stimulative. It’s important that the White House doesn’t repeat the mistake it made in the original stimulus and overpromise how much this will do for the economy. What you can say about this policy is that, for the moment, it doesn’t make things much worse, and it probably makes them a bit better. This is not the government making a major new commitment to the recovery. It’s the government not getting in the way, and maybe doing a bit to help, the horribly slow recovery that’s happening anyway.
A collateral benefit, of course, would be the enactment during the lame-duck session of the Defense Authorization bill, which includes an end to DADT, and Senate ratification of the START treaty. The deal seems to have eliminated the most immediate obstacle to action on these measures; we’ll soon know if progress is now possible.
More generally, the deal guarantees another and perhaps truly definitive battle over tax principles in 2012, adding to the high-stakes nature of that year’s presidential election.