Fiscal Policy: With just weeks to go before the biggest tax hike in U.S. history, President Obama and Republicans have agreed to a "framework" to extend the Bush tax cuts. The toughest sell will be Obama's own party.
Obama is taking heavy flak from his own party for not holding out for more in talks with congressional Republicans. But his various stimulus packages have done nothing for the economy, and he was desperate to keep tax-relief for the middle-class, a major political plum that will let him claim political credit for helping working families.
In giving in to the Republicans, however, the president did get a few things in exchange. For scrapping useless "making work pay" tax credits, he got a two-percentage point cut in the Social Security payroll tax. He also got a 13-month extension of the already too-generous 99-week jobless benefit.
"It's not perfect, but this compromise is an essential step on the road to recovery," said Obama. "It will stop middle-class taxes from going up. It will spur our private sector to create millions of new jobs, and add momentum that our economy badly needs."
We're not sure we'd go that far, but it's a lot better than the $3.2 trillion tax hike that would have hit Americans over the next decade if the deal hadn't been done.
Republicans? They got almost all of what they asked for, including extension of the Bush tax cuts for everyone for two years and 100% expensing for business investments for a year.
The top tax rate of 35%, which applies to many entrepreneurs and small business people, stays in place — as do the 15% tax rates on dividends and capital gains, which should help boost job creation in 2011. To top it off, the estate tax will be 35%, not the 55% it would have been with no deal, with a $5 million exclusion. This will save many family businesses from being dismantled to pay taxes.
By and large, then, this is a good deal — especially given the political circumstances of a White House and Senate still controlled by Democrats. While we'd like to see the Bush tax cuts made permanent — or, better still, real tax reform that flattened our tax structure and radically simplified the code — this was the best that could be done in the current political environment.
If there was a disappointment, it was that there's no deal to cut future spending — the real threat to America's economic future. Still, taxpayers will keep $900 billion in their pockets over the next two years that would have gone to the tax man. That's pretty good.
Democrats in Congress, kicking up a fuss over Obama's failure to "fight" for their ideas of income redistribution, need to ponder this: They are profoundly out of step with American public opinion on taxes and would be wise not to stand in the way of this deal.
Our IBD/TIPP Poll shows more than 50% support for keeping all the tax cuts in place — including those Obama and the Democrats have falsely styled as "tax cuts for millionaires and billionaires." Democrats will oppose this tax deal at their own political peril.
For Obama, this was a smart move — his first true effort to position himself for re-election in 2012. No doubt he knows this will boost the economy's chances of recovery.
One other point: This is not, as the Democrats say, a "tax cut." It merely keeps the status quo in place for two years. That it doesn't raise taxes in the middle of a recession, which is what the Democrats foolishly proposed, is a plus.
Congress needs to move on this at once. If it doesn't, the economy will take a tax hit that could bring on a second recession. And more tax and spending cuts, real ones, are needed. With nearly $10 trillion expected to be added to our nation's debt over the next decade, out-of-control government spending must be attacked soon.
For the time being, however, that old admonition applies: "Never let the perfect be the enemy of the good." Obama's right: This tax deal isn't perfect, but it's good enough.