Wonkbook: Everything you need to know about the Bush tax cut deal
I'll admit it: I didn't think they had it in them. A temporary extension of the Bush tax cuts? Sure, they could manage that. Fear is a powerful motivator in Washington, and nothing scares politicians like the threat of a tax hike on their constituents. But an actual, negotiated deal, in which the two parties sit in a room and give things up, and compromise on positions they'd taken in public, and walk out with a deal that accomplishes more than was strictly necessary? I didn't see that one coming.
The deal has something to annoy everyone -- but also something for everyone. You're a Democrat? The tax cuts for the rich are extended, and the estate tax deal exempts inheritances up to $5 million while cutting the rate heirs pay to 35 percent. But that's why the Republicans like it. You're a Republican? The tax cuts are only extended for two years, and they're paired with 13 months of unemployment insurance, an extension of a variety of tax credits passed in the stimulus, and a new payroll tax cut -- all of them deficit-financed. But that's why the Democrats like it. You're a deficit hawk? The deal adds more than $700 billion to the deficit. And, let's be honest, you got nothing in return.
It's important, however, to keep the actual policy in perspective. If you're a Republican who argues that long-term uncertainty about tax rates and the deficit are the main problem for the economy, this deal only eases tax uncertainty for two years and it makes the deficit worse. If you're a Democrat looking for more stimulus, this isn't nearly enough, and most of what's there is just an extension of programs that are currently in place. In reality, the politics of the compromise might mean more to the market than the specifics of the policy: The two parties actually have the ability to sit in a room and come to a compromise. That has implications far beyond yesterday's tax cut deal. It suggests that we may see more get done in the next two years than many of us thought, and there'll be more capacity to respond to crises than some feared.
Obama and Congressional Republicans have reached a deal on extending the Bush tax cuts, reports Shailagh Murray: "President Obama and congressional Republicans agreed Monday to a tentative deal that would extend for two years all the Bush-era income tax breaks set to expire on Dec. 31, continue unemployment benefits for an additional 13 months and cut payroll taxes for workers to encourage employers to start hiring."
"Obama was able to extract an agreement from GOP leaders to support an additional 13 months of jobless benefits, a 2 percent employee payroll tax cut and extensions of several tax credits aimed at working families that were included in the stimulus bill. The deal also would revive the estate tax, but it would exempt inheritances of up to $5 million for individuals and $10 million for couples. Democrats on Capitol Hill are strongly opposed to setting the cap at that high a level and to the 35 percent rate discussed by Obama and Republicans that would apply to the taxable portion of estates."
The president's take: "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. The American people didn’t send us here to wage symbolic battles or win symbolic victories. They would much rather have the comfort of knowing that when they open their first paycheck on January of 2011, it won’t be smaller than it was before, all because Washington decided they preferred to have a fight and failed to act."
Mitch McConnell's take: “I appreciate the determined efforts of the President and Vice President in working with Republicans on a bipartisan plan to prevent a tax hike on any American and in creating incentives for economic growth. Their efforts reflect a growing bipartisan belief that a new direction is needed if we are to revive the economy and help put millions of Americans back to work. Members of the Senate and House will review this bipartisan agreement, but I am optimistic that Democrats in Congress will show the same openness to preventing tax hikes the administration has already shown."
The White House political team's take: "Although his liberal supporters are furious about the decision, President Obama's willingness to extend all of the George W. Bush-era tax cuts is part of what White House officials say is a deliberate strategy: to demonstrate his ability to compromise with Republicans and portray the president as the last reasonable man in a sharply partisan Washington...he strategy emerged from hours of post-election meetings among senior administration officials who, after poring over returns, exit polls and midterm history, have determined that the loss of independent voters who supported Democrats in 2008 cost the party dozens of races this year. "
The liberals' take: "The plan has thus far received an icy reception from Capitol Hill Democrats. In a one-sentence statement to reporters, Jim Manley, spokesman for Senate Majority Leader Harry Reid said, 'Now that the President has outlined his proposal, Senator Reid plans on discussing it with his caucus tomorrow.' Sen. Bernie Sanders (I-VT) claims he will join a filibuster of the plan if and when it hits the Senate floor...Progressive economists have worried that a payroll tax break along the lines of the one announced tonight could come back to bite Democrats if it undermined the solvency of Social Security. But officials tonight insisted that its cost to the Social Security trust fund will be reimbursed with a credit from general revenue."
The National Review's take: "A qualified victory." "[Democrats] ran two presidential campaigns on a platform of extending the 'good' tax cuts while letting the 'bad' ones expire. President Obama has now moved into the second phase of capitulation. He has agreed to delay any tax increases, on anyone, for at least two years. The top marginal income-tax rate will stay at 35 percent; the dividend and capital-gains tax rates will stay at 15 percent. Over the next two years, the estate tax will be lower than it has been for almost any part of the last decade. The president has also agreed to an additional reduction in tax rates: Payroll taxes will also be temporarily reduced. And his own administration’s best policy proposal, allowing businesses to deduct the full cost of all investment expenses over the next two years, is also included in the deal."
My take: An imperfect, but better-then-I-expected, compromise. "So is this a good deal? It's a lot better than I would've told you the White House was going to get if you'd asked me a week ago. 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...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."
Live in studio interlude: Keepaway play "Sideways Smile".
Got tips, additions, or comments? E-mail me.
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Still to come: The Center for American Progress unveils a new deficit plan; a deal has been reached on the Medicare "doc fix"; the auto workers' union is under attack for supporting the South Korea trade deal; the Supreme Court will rule on a global warming case; and a kitten hugging a teddy bear.
The Center for American Progress has proposed its own deficit reduction plan, write Michael Ettlinger, Michael Linden, and Reece Rushing: "The most far-reaching of the revenue plans, the 100 percent tax revenue option, relies on seven distinct tax increases. This plan would generate $255 billion in new revenue by: Implementing a graduated surtax on adjusted gross income for households making more than half a million dollars per year. Imposing a $10 per barrel fee on imported oil. Returning the estate tax to pre-Bush tax cut levels--a $1 million exemption and a 55-percent rate. Removing the cap on the employer side of the Social Security payroll tax. Indexing the entire tax code to a better measure of inflation. Increasing the top rate on capital gains and dividends. Increasing the ordinary income tax rates on tax brackets. between $140,000 and $380,000."
Federal taxes are at a historic low: http://reut.rs/fv8QZj
We can cut the deficit without "austerity measures", writes Joseph Stiglitz: "In the US (and some other advanced industrial countries), any deficit-reduction agenda has to be set in the context of what happened over the last decade: a massive increase in defense expenditures, fueled by two fruitless wars, but going well beyond that; growth in inequality, with the top 1% garnering more than 20% of the country’s income, accompanied by a weakening of the middle class - median US household income has fallen by more than 5% over the past decade, and was in decline even before the recession; underinvestment in the public sector, including in infrastructure, evidenced so dramatically by the collapse of New Orleans’ levies; and growth in corporate welfare."
Bowles-Simpson worked, writes Keith Hennessey: http://bit.ly/hYzXx3
The world economy is in need of rebalancing, writes Jeffrey Sachs: "The first rebalancing should be between the rich and poor. The traditional gaps between the 'developed' and 'developing' worlds are closing, thanks to the remarkable growth of the emerging economies. The small club of the G-8 countries has already given way to the larger G-20, which includes China, India, Brazil and other emerging economies. It’s urgent to widen the circle still further, so that today’s poorest countries may gain a foothold on prosperity and participate fully in global leadership. Within our own divided societies, we must of course do the same. America and other highly unequal societies need to rebalance a culture of super-wealth alongside degrading poverty."
Adorable animal with a teddy interlude: A kitten hugging a teddy bear.
A deal has been reached on the Medicare "doc fix", reports Jennifer Haberkorn: "Senate leaders have reached a tentative, one-year deal on the Medicare 'doc-fix,' sources close to the negotiations say. The deal pays for the must-pass extension of Medicare doctors’ payments with changes in the tax subsidy program that some consumers will use after 2014 to buy health insurance on the new exchanges...The rest of the Senate was to review the deal Monday night with hopes of passing it with a unanimous consent agreement later this week, possibly on Wednesday...Democrats are under pressure to pass a full-year patch of the doc-fix during the lame duck session, because Republicans are already eyeing it as a vehicle to tie to repeal efforts in the next congress."
Arizona's organ rationing system is morally and technically wrong, writes Sally Satel: "The Arizona decision is doubly wrong, technically and morally. To regard transplantation as "optional" is a grievous medical error. When suitable patients receive organs, they can live meaningful and longer lives as parents, spouses, neighbors, and workers. Morally, it is troubling enough to deny life-saving treatment by never guaranteeing it in the first place; it is even worse to pull the plug on people's hope--and, with it, their lives. At the very least, the state should have grandfathered in those already assured of coverage. Then, going forward, in refusing to transplant those who could not afford it, Arizona would be making more explicit the economic rationing that already exists."
The United Auto Workers are under fire for backing the South Korea trade deal, reports John Maggs: "Organized labor is in an uproar over the new free trade agreement with South Korea, with some union leaders accusing United Auto Workers president Bob King of embracing a deal to curry favor with a White House that saved the UAW with its $80 billion bailout of the auto industry. King denied the charge in an interview Monday and said he would work to convince his fellow union presidents to support the agreement, predicting that 'they will see that this a good deal for our members, and they will respect that.'...Neutrality would be a watershed moment for the labor movement, which has made a harsh attack on trade and globalization a central principle for decades, according to Andy Stern, former president of the Service Employees International Union."
DC-area Congressmen are fighting the federal pay freeze: http://wapo.st/eUnbza
Ex-DC schools chancellor Michelle Rhee is launching a campaign organization, report Bill Turque and Nick Anderson: "Michelle A. Rhee, who often expressed impatience with politics in more than three years as D.C. schools chancellor, launched a new political organization Monday that plans to spend $1 billion bringing her aggressive brand of education reform to the national stage . Rhee said the new group, StudentsFirst, will pressure elected officials and bankroll candidates at all levels of government who support her approach. The agenda includes recruiting high-quality teachers who are held accountable for student growth, swiftly removing those who do not perform, offering merit pay to reward top educators, expanding school choice and fostering parent and family involvement."
Republicans should support the DREAM Act, writes Michael Gerson: "Critics counter that the law would be a reward for illegal behavior and an incentive for future lawbreaking. But these immigrants, categorized as illegal, have done nothing illegal. They are condemned to a shadow existence entirely by the actions of their parents. And the Dream Act is not an open invitation for future illegal immigrants to bring their minors to America. Only applicants who have lived in America continuously for five years before enactment of the law would qualify... The actual choice is between allowing these young men and women to develop their talents and serve in the military, or not."
Young wizards being judge-y interlude: Every moment of Hermione snark in the Harry Potter movies.
The Supreme Court is hearing a case on global warming, reports Robin Bravender: "The court will hear an appeal next year from electric utilities in the high-profile American Electric Power v. Connecticut case. Power companies are challenging a lower court ruling that allowed states and environmental groups to move ahead with a public nuisance lawsuit seeking to force the utilities to slash their greenhouse gas emissions. Monday’s decision marks a victory for the utilities -- American Electric Power Co., Duke Energy, Southern Co., Xcel Energy Inc. and the Tennessee Valley Authority -- that want the court to toss out the decision that could force them to reduce their greenhouse gas emissions."
White House energy czar Carol Browner may become deputy chief of staff, reports Darren Samuelsohn: "Would anyone notice if the White House didn't have a special energy and climate office? That's the million-dollar question as President Barack Obama considers giving Carol Browner a promotion to deputy chief of staff...White House officials say Browner’s tenure has been a success, citing the creation of the first greenhouse gas standards for automobiles and a record $90 billion stuffed into the economic stimulus package for renewable energy. She also got high marks for her coordination of the response to this year’s Gulf of Mexico oil spill."
Al Gore's climate group is cutting staff: http://politi.co/h5N5aq
Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews, Mike Shepard, and Michelle Williams. Photo credit: White House.
| December 7, 2010; 6:34 AM ET
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