You are hereBlogs / Kelly Thomas's blog / Tax Cut Deal or Disaster?

Tax Cut Deal or Disaster?

By Kelly Thomas - Posted on 06 December 2010

From CNN. It looks like President Obama and the Republicans have a framework for a final deal on tax cuts. It certainly does not have the blessing of all Democrats in Congress since Progressives are down right angry (some are even vowing to fillibuster it!) but I think what we see here is pretty much what we will get. There is actually more "good" in this than I anticipated in terms of things that might actually stimulate the economy and certain tax breaks that will benefit the middle class. But is the "good" enough to offset an expensive, unnecessary and unpopular (just look at this CBS poll) tax cut for the rich?

Washington (CNN) -- President Barack Obama on Monday announced a deal with Republican leaders that would extend Bush-era tax cuts for two years and unemployment benefits for 13 months while also lowering the payroll tax by two percentage points for a year.

The compromise, worked out in negotiations involving the White House, the Treasury and congressional leaders from both parties, includes provisions that each side doesn't like, Obama said in a hastily arranged statement to reporters after discussing the proposed deal with Democratic leaders.

"It's not perfect," Obama said of the plan, which also would continue tax breaks for students and families contained in the 2009 stimulus bill and allow businesses to write off all investments they make next year. "We cannot play politics at a time when the American people are looking for us to solve problems."

As outlined by Obama and sources, the deal would add up to hundreds of billions of dollars in more federal spending or lower revenue in coming years at a time when the president, Republican leaders and a federal deficit commission appointed by the president all say that the growing federal debt must be brought under control.

Democrats in Congress expressed initial concern with the deal, saying it conceded too much to Republican demands.

"I'm not at all happy with this. I want to see all the details before I make some kind of commitment," Democratic Sen. Sherrod Brown of Ohio told CNN. Asked if Obama "caved" to Republicans, Brown said: "I don't know if he caved. I think he could have gotten a better agreement."

...The deal includes the temporary two percentage-point reduction in the payroll tax to replace Obama's "making work pay" tax credit from the 2009 economic stimulus package for lower-income Americans. An administration source familiar with the talks said the one-year reduction of the payroll tax would bring savings of about $1,000 for someone making $50,000.

In a concession to Republicans, it sets the estate tax at 35% for two years on inheritances worth more than $5 million. That rate is a compromise between Democratic and Republican positions on the estate tax, which previously had been expected to be higher and apply to estates of $3.5 million or greater, a senior administration official told reporters.

House Democrats, who have approved a measure extending the Bush-era tax cuts for family incomes up to $250,000 a year, indicated earlier Monday they were unhappy with the negotiations that the White House was conducting with congressional Republicans.

"We won't rubber stamp a deal between the White House and (Senate Minority Leader) Mitch McConnell," one Democratic congressional source told CNN. "We want to make it clear. Don't take our support for granted."

According to the senior Democratic source, Obama and Biden told the congressional Democrats that the proposed deal was the best they could expect.

Liberal House Democrats are believed to be among the most reluctant in Congress to agree to a deal extending all of the 2001 and 2003 tax cuts.

..."Without a willingness to give on both sides, there's no reason to believe that this stalemate won't continue well into next year," Obama said. "This would be a chilling prospect for the American people whose taxes are currently scheduled to go up on January 1st because of arrangements that were made back in 2001 and 2003 under the Bush tax cuts. I am not willing to let that happen."

Senior administration officials who briefed reporters after the announcement said the extended unemployment benefits and tax credits in the deal justified the agreement to extend the Bush-era tax cuts for everyone for another two years. In particular, they cited the payroll tax cut for 2011 that would benefit directly benefit workers.

"We felt that if there was an opportunity to get significant tax relief to working families in 2011, that would be the most compelling thing to the economy," one of the senior administration officials said.

Top senators from both parties had indicated Sunday that a deal linking the extension of lower tax rates for everyone with extended unemployment benefits was likely. Congress would continue working on a long-term plan to reduce the nation's debt.

...Earlier Monday, Obama reiterated his position that extending the cuts for the wealthiest Americans would be fiscally irresponsible, and stressed the opinion of Democratic leaders that an extension of unemployment benefits needs to be part of any agreement with the GOP.

"We have got to find consensus here because a middle-class tax hike would be very tough, not only on working families, it would also be a drag on our economy at this moment," Obama told an audience in Winston-Salem, North Carolina.

"We've got to make sure that we are coming up with a solution even if it is not 100% of what I want or what the Republicans want," he said.

My sense is that the economy-with or without this package-will slowly start to improve on it's own soon. So Democrats will point to their ideas in this which helped spur the economy and the GOP will claim that we must keep these tax cuts forever since that was what saved the economy. (Just figured we should get ready for the 2012 talking points.)

If Obama somehow gets DADT repealed, the Dream Act passed and the Start Treaty ratified in the lameduck, I will give him full credit on this deal for actually getting important items done in exchange for the bitter pill of tax cuts for the rich. If he gets none of the above, I'm afraid he will begin the new Congress session with an even bigger "kick me" sign on his back. NOT a good way to begin working with the smug, newly empowered Tea-Party lovin' GOP.

I saw this piece by John Marshall (editor TPM.) Take note of his reference to Ezra Klein's unique perspective that this might be a "win" for the White House.

I'd figured that the "deal" over taxes was going to have permanent extensions on your first $250,000 of taxable income and temporary extensions for those of you lucky enough to have income over that. Having the upper income tax cuts get re-litigated in 2012 is good politics for the Democrats if you get 'decoupling' like that -- having the debate solely on taxable income over $250,000. But apparently they're temporary for everyone. Which means you're going to have this exact same debate in 2012. Which, for those of you following at home, is not a very good thing.

In theory that might not be a bad thing. But after the whiff in September and now this cave, I'm having a certain lack of confidence in their ability to manage this one.

On the other hand, Ezra Klein argues that this might amount to a win for the White House on mid-term political and even policy grounds because of the stimulative effect of the tax cuts and the UI re-up combined. His argument being that there's enough stimulus contained in the deal to measurably improve the economy by 2012 and thus the president's chances of reelection. Not only that, but create a better political climate to re-litigate the tax question. I think Ezra may be on to something (I'll have to give it some thought). But I find myself in a position somewhat similar to that he acribes to a lot of folks on the Hill: it might be brilliant. But it's getting hard to believe it's not brilliant by accident.

When McConnell produced the infamous letter in which Republicans would refuse everything in negotiations if their specific terms  and priorities weren't met, Obama and the Democrats had two options: stare them down (even at the risk of going into 2011) or cave.  

Obama: I will not take this debate into 2011 with people expecting us to act.

McConnell:  I WILL take this debate into 2011 if you don't knuckle under.

The better man won.  Not the better bill, but the better man.


Well said, Tom. Say whatever you want about President Obama but he was clearly committed to extending tax cuts for the middle class before it expired and getting unemployment benefits extended for some pretty desperate people. And he knows his enemy pretty well. They were not bluffing. When they say: we'll fillibuster everything until we get our way, they mean it (even if that includes appointing Jesus himself to a post in Obama's cabinet!) He could have declared war on the GOP with ease if he wanted to but the result probably would be:

1. Nothing done in lameduck (could still happen despite this deal, however)

2. No unemployment benefit extension-period

3. Middle class taxes go up January 1st indefinitely until the GOP gets their way or is shamed into concessions, whichever comes first-but still a delay in relief for the middle class

4. A hellish 2 years with the GOP ensuring that NOTHING is accomplished unless it involves repealing something good the president already did.

Maybe he is a wimp but he is a wimp with his heart in the right place and the nation's interests clearly a top priority.

President Obama had some pretty harsh words for Republicans (holding middle class hostage) and "purist" progressives (inferring they need to deal with the reality of the situtation and not put people at risk for a good fight that can't be won) in his press conference today. And this is clearly not a done deal afterall.

He faced an icy reception from Democrats, with some even looking at fillibuster options.

And this is huge since the Tea Party has so much sway. Influential conservatives and groups are coming out against it, too. Apparently, not enough goodies for the rich and they hate helping the unemployed!

What will be the end result? I'm afraid this means nothing will get done in the lameduck since this issue is far from settled. Pretty depressing.

I'd love for Republicans to fillibuster this in the name of fighting for the death tax and the richest of the rich. As a result, all tax rates would go back to the Clinton years and then the Democrats could really orchestrate a better deal and say "Hey, you had your chance and blew it. No more tax cuts for the rich!" Just a dream-not really based in reality.

The truth is the longer we go without a deal, the longer the unemployed suffer and the greater chance the middle class taxes will be raised at the worst time possible. Which means the economy continues to drag. Thanks for all you do, Republicans! So glad to know you care about your fellow citizens during challening times.
Interesting opinion piece on why this deal is NOT a cave to the Republicans. Not saying I agree but it opens my mind a bit.
2012 is a long way from here. I don't think President Obama has much to worry about. If anything, a challenge would help with with Independents-he will be seen as more moderate.
Just posting it.
Independents don't vote in the primaries though.

I am not saying that President Obama has nothing to worry about if a strong, more Progressive challenger steps up, especially if he keeps making choices that upset the base or can't produce key promises on DADT or immigration reform. But if the economy improves-which I think it will in the next few years and if he can get some of his promises fulfilled-he may find his footing again and this rough spot may be forgotten and/or forgiven-even by the angry base he is dealing with now.

Good point that Independents don't vote in most primaries. Just as the Tea Party was a huge voting block on the right which knocked off moderate voices in the primaries, Democratic voters tend to be more Progressive in the primaries. Should be interesting to see if he can win back his base or if they will still contribute money and knock on doors for 2012. Perhaps they will totally turn on him and support a challenger.

He did say he would try to do the right thing as President, even if that means being a one-term president so I don't think he worried too much about popularity. I'm not saying giving tax cuts to the rich is good for the country, but when Obama-at least in his mind-weighed his options of getting nothing done but holding firm on his tax cuts position vs. "giving in" to get help for the unemployed, etc. he seems to really think that this deal is the best he could produce to move us in the right direction. Time will tell if this decision was good or bad. It is similar to the public option fight. Like it or not, he knew he could not get the votes for the public option and chose to accept what he could get, rather than fight for the public option and see it all dissolve in front of him.

"It is similar to the public option fight"
I disagree.

The public option was one piece of his larger campaign promise to reform health care in the USA, and with the help of the very progressives he now scorns, he was able to do so.

Higher taxes for those making 250,000 or more was a central piece of debt reduction/revenue enhancement policy. Unlike the modified health care reform act w/out a public option, which still protects many more people than would have been protected with the public option, the 250K and estate tax break surrenders do the OPPOSITE of what the those taxes are intended to do: they raise the debt and not lower it; they increase the burden of funding government on those least able to bear it; they do not significantly, if at all, stimulate job creation (and do so far less efficiently than many other kinds of tax incentives and credits).

I have signed the moveon petition supporting Sanders' efforts to block and defeat the bill (with filibuster) and have written to that effect to my two NY Senators.

I don't disagree with you on principle. Many would say if Obama had set up a huge PR campaign to push for the public option or make the case against tax cuts for the rich (perhaps threatening to veto both pieces of legislation without those addressed) he could have really won on both. Public opinion was already on his side for both so it may have even been easy. But for some reason he does not use his bully pulpit like that. Maybe it's because he was told behind the scenes that certain Democrats would never vote for a public option and if he wanted to save the whole thing, he'd better abandon it. Or, on the tax issue, maybe he felt it was not worth the fight, given the unity of the GOP and their love of the fillibuster for everything. He probably envisioned pure hell in future fights. I'm sure he knows that he could have won both battles but felt the long-term consequences (no health care reform, no extention of unemployment benefits, let alone items like DADT, etc.) It's easy for us to judge and demand a fighting spirit, but my guess is that his "inside knowledge" behind the scenes may force him to take a more realistic view, which is devastating to his base or anyone who supported him during the campaign. I'm not trying to let him off the hook. Part of my support for him was his leadership skills-so I think he can certainly sway the direction of things and public opionion MUCH better than he has. I am just trying to be open-minded about why he makes certain decisions.

At the time, I was not a fan of Hillary Clinton but I recall how excited Porgressives were when she crafted Health Care Reform. Nobody questioned her passion, her toughness, her willingness to fight, her PR campaign...but look at what resulted. If there was more compromise and negotiations or even realistic goals, perhaps she could have achieved what Obama now has passed (it was the idea of Bob Dole anyway!) and Obama could have stepped it to the public option level by now. Passion and a good fight on principle are amazing to watch, but unless they result in success and legislation that counts, it won't make any of us feel better in the end.

I won't sign the petition because I really think this is the best they can get (perhaps making a few amendments to what is there during the conference time when the House and Senate merge bills.) But I almost think the GOP loves the push-back happening from the left and  hopes the Democrats, like Sanders (and God love his passion) stall this or fillibuster it because that will give them cover when they block DADT, Dream Act and Start Treaty. "Well, until we can get through the tax debate, we'll block everything..." The clock is ticking and I'd rather give them this tax bill with the few perks for the middle class, knowing it will pass anyway with time (according to John Harwood, it's just a matter of when) to allow DADT, Dream Act and Start to have a chance. If those don't pass before Dec. 31, I'm afraid they are doomed. We know the GOP plays tough and is willing to hold the nation hostage to help their rich buddies, pay back the lobbyists who helped elect them. It's annoying-but sometimes we have to be realists and take the few victories we can while we swallow the bitter pills and swallow our pride at the same time.

House Dems have just announced they won't present the bill in its current form. 

Time for a new thread on this phase of the struggle?

I do take this as good news but I appreciate the risks you raise. I speak from the privileged  vantage point of an employed person, but I am willing to risk one month delay on benefits and other consequences if it means stopping Obama NOW from capitulating to Republicans' humiliating pre emptory demands every time something has to be negotiated over the next two years.


I'd be with you if it really did stop this, but if we get this tax bill in one month anyway, having said farewell to DADT repeal, Dream Act and Start Treaty during the lameduck just to go through the motions*, while handing the unemployed the Christmas from hell, the punch in the gut will feel worse to me than it does right now.

*and I truly believe in the sincerity and passion of people like Bernie Sanders-I really do!!

Everyone should be trying to catch the Daily Show/Colbert most days or catch up on weekends. It's been good and it's a pain to post it all when I have no idea who uses what I post.

The Daily Show With Jon Stewart Mon - Thurs 11p / 10c

Daily Show Full Episodes Political Humor & Satire Blog The Daily Show on Facebook
Thanks for posting these!! I do try to watch or DVR the show but I am behind on so much with the craziness of the Holiday season.

Looks like House Democrats will reluctantly fall in line on the tax cut deal, and face reality (if they try to change the bill it will just come back to them from the Senate and prolong other important things.) Even Barney Frank will vote yes while plugging his nose. I admire their passion and heart on this (led my the amazing Bernie Sanders) and they really are RIGHT about the rich not needing these tax cuts and the deficit being impacted harshly. But Republicans play hardball and they have proven they will stall, foot drag, and block ANY legislation (even a 9/11 first responders bill!) until they get their way. President Obama saw that wiriting on the wall and acted in a way to secure unemployment benefits and middle class tax cuts, although I'm sure it was not easy for him.

I hope all the minority's abuse of the fillibuster inspire that "constitutional option" to change the rules on Day 1 of the next Congress. iI they can't get 51 Senators to agree to that after all the obstruction we've seen, we're in trouble.

I was surprised to see some polling which shows over 60% of the public actually support this tax deal, but maybe they are showing support that finally something bipartisan is happening, or maybe the questions ignore the deficit impacts, or maybe they are unemployed and afraid of what will happen if a bill does not pass.

Follow RFO:

TwitterCafe PressFacebook




RFO Gear

Subscribe to General RFO Newsletter

General news and announcements for We will never share or sell your email address.