07 December 2010

Compromise kudos

An "attaboy" to President Obama and congressional Republicans for agreeing on the framework of a deal that will both extend the Bush tax cuts for an additional 2 years, and extend unemployment benefits for an additional 13 months.

Liberals are -- somewhat understandably -- upset by what they believe to be Obama's capitulation to the GOP on the tax cut issue. To be fair to our liberal friends, Obama ran on the premise that he would support a middle class tax cut but that he would strongly oppose any extension of the Bush tax cuts for the wealthiest Americans.

Some Democrats -- namely, Chuck Schumer and Anthony Weiner -- wanted Obama to frame the debate in a different way. Instead of allowing Republicans to -- correctly -- argue that hundreds of thousands of small businesses who file as S-corporations would see a tax hike at the end of the calendar year, Weiner wanted to exempt all small businesses from the hike and instead target the tax increases at individuals. SImilarly, Schumer suggested that the debate be framed as a "millionaire's tax" -- that is, if you make less than a million dollars, you'll keep your rate under the Bush tax cuts. Both the Schumer and Weiner ideas would have, admittedly, been savvy political maneuvers that would probably have won both the left and the middle -- but it's not clear that Obama would have been able to extend unemployment benefits by January 1.

And, with Republicans threatening to hold up unemployment benefits unless tax cuts were extended across the board, I'm guessing the president felt his hand was forced.

He certainly looked defeated during his press conference yesterday afternoon.

(By the way, can these things even be called "press conferences"? It seems that Obama is even slipperier than George W. Bush when it comes to taking reporters' questions. When was the last Barack Obama press conference, anyway? 2005?)

By engineering this deal -- which is, I think, a straight-down-the-middle compromise -- the president avoided a major fight and secured the extension of unemployment benefits for an additional 13 months. With the unemployment rate sitting at 9.8%, this was no small feat. Unemployment benefits, as has been astutely noted, are almost always pumped dollar-for-dollar back into the local economy for necessaries such as food, clothing and housing, so there is at least a modest stimulative effect to such an extension.

On the other hand, it would have been an abysmally terrible idea to impose a tax increase as our country continues its slow climb out of a recession. I'm not sure what liberal Democrats who pushed for across-the-board tax increases think will happen if hundreds of thousands of small businesses see tens of thousands of additional dollars go out the door in taxes. THEY STOP HIRING! AND THEY FIRE PEOPLE!

One final word: Republicans cannot expect to be taken seriously as the party of fiscal responsibility if, in two years, they argue for a permanent extension of the Bush tax cuts. I wanted to address this in a future post, but it bears mentioning now. There is an implicit argument made by conservatives that if taxes go up -- for anyone -- then the economy will immediately fall into a recession. But that certainly didn't happen during the Clinton presidency, when taxes on the top 5% of wage-earners rose from 36% to 39.5% -- instead of a recession, America enjoyed the longest peacetime economic boom in history. And yes, those tax increases set the table for a series of balanced budgets that were promptly obliterated by Bush and the Republican-controlled Congresses of 2001-2006.

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