I obviously oppose the deal President Obama made with Senate Republicans, to extend the expiring Bush income tax cuts on all incomes until the end of 2012 and reinstate the estate tax at a 35 percent rate on values above $3.5 million, in “return” for a 13-month unemployment insurance extension, a payroll tax holiday, and various other tax credits.
This deal is bad on both policy and political grounds.
On political grounds, I have previously explained that Democrats had the upper hand in tax cut negotiations, since tax cuts – in particular, George W. Bush’s tax cuts disproportionately benefiting the very wealthy – are the Republicans’ baby. For the full explanation, see “Am I Completely Missing Something About the Politics of the Bush Tax Cuts?”
Furthermore, Paul Krugman has written both about how making this deal signals to Republicans that Obama will simply surrender again when we have to go through this all over again in two years, and how the premature expiration of the deal’s most stimulative effects will actually endanger Democrats’ electoral fortunes – and Obama’s own reelection – in 2012. (Not that I really care about Obama being reelected at this point.)
Finally, Jon Walker at FDL has explained that most of the concessions that Obama putatively “won” were ones Republicans were probably inclined to hand over even without an agreement to extend tax cuts on the top income levels.
On policy grounds, there are a few good things but also plenty of bad.
Tax cuts for upper income levels: Obviously a bad idea; those upper income tax cuts are not needed and have little stimulative effect in an economy that’s sagging because of lack of demand.
Tax cuts for lower income levels: Fine for an extension during this economic downturn, though I oppose making all the tax cuts for lower income levels permanent (the only ones I for sure support making permanent are the 10 percent bracket, the child tax credit (in fact this should be expanded) and elimination of higher rates for married filers).
By the way, since income taxes apply to dollar amounts of income rather than the people who make that income, rich people will get the full benefit of these tax cuts as well. Contrary to what some might think, the rich do not get shut out of tax cuts only applying to below $250K – a guy who makes a million dollars a year would still get tax cuts on all of his income up to $250K.
Estate tax cut: I’m glad some estate tax is being reinstated, though I don’t think 35% above $3.5 million is high enough. By way of reference, I believe the pre-2001 rate the estate tax would revert to without the deal would be substantially higher at 55% above $1 million (I could be wrong on those numbers). So if anything, this is a conservative ask and we’re going backwards in the area of estate taxes.
Unemployment Insurance Extension and Other Liberal Tax Credits: Obviously good, though I don’t understand why the extension on UI is only for thirteen months whereas the one for tax cuts for the very wealthy is for twenty four. And again, a lot of this is stuff Republicans would support or at least wouldn’t oppose.
Payroll Tax Holiday: It isn’t getting a lot of coverage, but this might actually turn out to be the worst part of the deal. I don’t mind a payroll tax holiday if it’s guaranteed to be temporary (given that the payroll tax predominately affects lower-income people) but the problem is that it might not turn out to be temporary, because of the fucked-up nature of tax politics in this country, and then it could end up potentially undermining Social Security’s finances.
Just as much cause for concern is that, apparently, the payroll tax holiday would actually mean those who make less than $20 000 a year would see a tax increase.
maverickjh 