Friday question answered
Again, I want to thank all who commented on Friday's open thread on who is the big winner and who is the big loser in the Bush tax cuts deal. Kudos for the high level of discourse. There were a number of interesting and provocative answers, but sold2u touched on several key issues on the subject of who wins and who loses on the tax agreement and what Speaker Nancy Pelosi will do:
The biggest winner is the unemployed. At least they get a little peace of mind over the holidays. If the extension actually helps encourage new hiring, even better. The unemployed are due a little luck.
The losers - liberal academic economists like Krugman and Reich. Obama has signed off on the tax cuts and sold it as a stimulus plan. The political Left has abandoned the Keynsian "increase spending / increase taxes" worldview. Both Krugman and Reich will continue to argue their viewpoints to the faithful reading HuffPo and the NYT, as opposed to the real decision makers in Washington. Their prescriptions came close to being actual policy; now they are just another academic exercise...
Nancy [Pelosi] will try and get a bone regarding increasing the estate level taxation. However she knows that the deal can only get worse if she kicks it to the next Congress. The Left already has been working the narrative that they really got the better of the deal. This will give her the cover to go along with it.
The unemployed should rejoice, although I'm not certain whether the reader is referring to the extension of unemployment benefits or the Bush tax cuts. As others, including Larry Summers, have argued, extension of unemployment benefits tends to prolong, not shorten, the span of unemployment. As for the Bush tax cuts, there is a political reason for each side to extend it only two years, but the economics on a two-year deal are shaky. Democrats still think tax "fairness" is a winner and they want to keep it alive for the 2012 election; Republicans think it's a loser so they also want to fight about it again in two years. But does it make sense from a business perspective? Probably not. To get the biggest bang for the buck, a permanent extension, providing certainty for employers as to their future costs, would be ideal. But, alas, this is a compromise, so the unemployed should be glad that their chances of finding work are marginally improved.
I agree with the reader that the soak-the-rich liberal dogma and their propensity to divorce tax policy from economic performance were seriously undermined by Obama's embrace of the Bush tax cuts. But the president is also a loser, though he did not need to be. A cranky press conference, an unfavorable side-by-side comparison to Bill Clinton and the avalanche of liberal criticism have left him bruised and politically vulnerable. If you want to triangulate you have to do with good cheer and confidence, not with a kick in the shins to both sides. Obama's petulance is getting the better of him.
As for Pelosi, I suspect she won't even get a crumb. The Senate is due to vote on cloture this afternoon. If there are 60 votes (I'l bet the number will be at least 65), that is the only bill, that's going to make it through the House. If the bills are different, we'll need a conference committee and another round of votes. All before Christmas? Fuggetaboutit. The Senate bill be the final deal, and Pelosi will get her first taste of what the 112th Congress will be like (i.e. unpleasant for liberals).
| December 13, 2010; 9:15 AM ET
Categories: President Obama, Taxes
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