Tax Compromise: President Obama Had Your Back

Not that anything under the Sun is new, but a good chunk of the Left established media (both new and old) are in uproar over the compromise between President Obama and Congressional Republicans on unemployment extension and tax cuts.  The accusations of President Obama as a sellout are flying left and right (well, mostly left).  Even Democracy for America, a group I have been a founding member of, emailed me yesterday waxing poetic about how the White House should have "dared" Republicans to raise taxes on all Americans.  I mean, it's not that they don't get it - they obviously do - but they think that making some kind of a statement is more important than the following things:
  • Extending unemployment benefits for 13 months.
  • Reducing the employee portion of the Social Security payroll tax by 2 percentage point for a year.
  • Extending all the middle class tax breaks - the Bush tax cuts and the ones given in last year's Recovery Act.
Because that is exactly what the White House negotiated with the Republicans in exchange for a temporary, two-year extension of the current tax rates, including for the wealthy.  Now, mind you, I have myself been for letting all the Bush tax cuts expire as a matter of policy preference (not political battle strategy, which it is a lousy one of, and contingent upon the government spending the money saved in stimulative activities), but this tradeoff actually looks pretty good to me.  I'll let the President speak for himself:



To understand why this had to happen this way, consider the following two things: the idea that Republicans would cave on the tax cuts for the rich is a terribly mistaken premise, and the deal was actually a compromise that produces results for America's middle class, the working poor, and the unemployed.

The Absurd Premise of Republican Caving on Taxing the Rich

There is a laughable premise at play for everyone who thinks that if the Democrats just refuse to back down instead of making a deal, that the Republicans will be forced to back down and vote for the middle class tax breaks alone and everything else on the above list, too.  That idea has already proven to be as real as a unicorn.  This isn't a matter of predictions anymore.  The premise has been shown to be false in two ways:

First, the premise is based on a statement from Republican Leader and now Speaker-in-waiting John Boehner that he would vote for the middle class tax breaks alone if given no other option.  The logic follows: See?  If we just keep up the pressure and force them to vote for it, they'll vote for the middle class tax breaks only.  Uhh, dreamland.  The House did vote on making the only middle class tax cuts permanent on December 2.  Guess which way Boehner voted?  That's right, he voted NO, and only three House Republicans voted Yes.

So long as we are talking about forcing votes, Senate Majority Leader Harry Reid also forced a vote in the Senate on the tax cuts.  But Republicans killed that measure - and another one eliminating the tax breaks only for millionaires - in a procedural play also, using a filibuster.  By the way, in that same vote, they also killed an extension of unemployment benefits.  Republicans in the House also blocked an emergency bill to extend unemployment benefits (under suspension of rules, it would have required a two-thirds vote).

Just to recap here: there is no merit - zero, zilch, nada, none - to the argument that forcing a vote, or "daring" the Republicans would produce better results.  Because votes were forced, and Republicans were dared.  Republicans in Congress proved beyond any doubt their willingness to hold middle class tax cuts and benefits for the jobless hostage to a tax giveaway for the rich.  So when you hear the President tell you that exact thing, believe him.  Anyone who thinks that Republicans would have given in, especially given that their hand gets stronger in the next Congress, is living in fantasy-land.

The Substantive Compromise: A Look at the Policy

The tax-giveaway part of the deal had to be made to politically accomplish the other things: most importantly, a 13 month extension of unemployment benefits, helping an estimated seven million people over the course of that time.  That is a big achievement.  The Washington Post's Ezra Klein, often a critic (but a measured one) of the Administration's negotiation policies, expressed a rather pleasant surprise in this aspect of the deal.
Most observers -- myself included -- thought the federal boost to unemployment insurance (which allowed jobless workers in states with high levels of unemployment to collect insurance for up to 99 weeks) would lapse. At best, there'd be another two- or three-month extension. In perhaps the most important part of the deal, there's going to be a 13-month extension at a cost of $56 billion.
This is not only good news for the unemployed in a shaky economy, but also for the economy itself as extending unemployment benefits is seen as one of the highest-yield economic policy, producing as much as $2 in economic activity for every dollar spent in benefits.  But the President got more for the middle class and the working poor.  With respect to the middle class tax provisions, this is important to keep in mind from the President's speech:
As a result, we have arrived at a framework for a bipartisan agreement. For the next two years, every American family will keep their tax cuts -- not just the Bush tax cuts, but those that have been put in place over the last couple of years that are helping parents and students and other folks manage their bills.

In exchange for a temporary extension of the tax cuts for the wealthiest Americans, we will be able to protect key tax cuts for working families -- the Earned Income Tax Credit that helps families climb out of poverty; the Child Tax Credit that makes sure families don’t see their taxes jump up to $1,000 for every child; and the American Opportunity Tax Credit that ensures over 8 million students and their families don’t suddenly see the cost of college shooting up.
You see, as it turns out, the Bush tax cuts weren't the only things about to expire at the end of this year. The Obama tax cuts for the middle class and help for students under the Recovery Act were about to expire as well. The deal extended those provisions for two more years as well. And just what do those provisions mean for middle class families?  Quite a lot, as it turns out.
  • The American Opportunity Tax Credit, which gives students and families up to $2,500 in tax savings to help pay for college tuition and other expenses. The AOTC and other tuition benefits have helped more than 12.5 million students and their families pay for college, an increase in tax benefits for higher education of more than 90 percent from the year before.
  • The Earned Income Tax Credit, which helps moderate-income working families make ends meet. The Recovery Act increased the credit for families with three or more children, bringing the maximum amount to $5,657.
  • The Child Tax Credit, which helps low-and moderate-income families with children. More families are benefitting from the child tax credit under the Recovery Act, which reduced the minimum amount of earned income used to calculate the additional child tax credit to $3,000 from $12,550.
Now, I'm not married, and I don't have children, so I am probably one of the people with the luxury to say the hell with it and just stick to my gun about no extensions of the current tax code for the rich.  But my problem about that is that I'm also a liberal.  As a liberal, I care about more than just me.  I care about these families, and not to mention, the US economy that they keep going.

The AP has a summary of more key features of the deal.  It has - probably for the first time in a long time - something for the working poor: a cut in Social Security Payroll taxes for the employee.
Cuts payroll taxes by 2 percentage points for 2011 for a total of $120 billion. That means employees will pay 4.2 percent to Social Security instead of 6.2 percent. A worker who earns $40,000 a year would get $800 over the year; a worker who makes $70,000 would get $1,400.
Ezra Klein reports (he's not the only one) that the payroll tax cut will boost take-home pay of Americans by a total of $120 billion next year.  Remember that the biggest tax burden on the poorest wage earners is payroll taxes.  A payroll tax cut is one of the most effective ways of putting extra money in the hand of the working poor and the cash-strapped middle class.  For those wondering, no, this does not impact Social Security trust fund or revenue.  Revenue is shifted from the general fund to make up the gap.  This is a tax cut for people who need it, and who will spend it.

The deal also has a compromise on the inheritance tax, with a 35% tax on inheritances over $5 million.  It also incentivizes business investment by allowing businesses to write off 100% of their capital investments in 2011.

Once again, we'll go back to Ezra Klein for some words of wisdom on this deal:
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 Democrats will like and some things they won't like, and it includes some things Republicans will like and some things they won't like. But it's a deal, and a better one than many -- myself included -- thought they'd reach.
Exactly.  Folks, this is a real compromise.  If you thought there weren't going to have to be any compromises after the Republicans won the House, you weren't thinking straight.  But this is a compromise in which we give some and we get some.  Not just in political terms but in real-life, real-people policy terms.  And President Obama negotiated in that room for the ordinary American people and for the American middle class.  You want a president on your side?  You have one.