Parsing the tax-cut-and-spend deal in Washington
President Barack Obama appears to have struck a deal with Democratic and Republican leaders that extends all the Bush-era tax cuts while also continuing unemployment benefits for another 13 months.
Liberals are furious because they want rich people to be taxed more and saw this as an easy win that Mr. Obama tossed away.
After all, most Americans agree that people earning more than $250,000 a year should see their taxes go up.
But setting aside partisan score-settling, the deeper truth about this deal is more troubling.
It shows that both sides are going to continue to fight for their special interests and narrow constituencies, even if it bankrupts the country.
Democrats wanted an extension of unemployment payments, and more tax cuts for the middle class. They also wanted more stimulus. They got all that, at a huge cost to the Federal treasury.
Republicans wanted an extension of tax cuts to the middle class and the very wealthy, which they insisted would also provide a major stimulus. They got all taht, at a similarly huge cost to the Federal treasury.
Everybody wins, right?
Except that at the end of the day there is absolutely no sign that either party is serious about tackling long-term systemic deficits.
It’s hard to see a future where these kind of deals won’t keep getting made. Republicans will have their special projects, or their constituencies who need big piles of Federal cash.
Democrats will have their sacred cows, their pet projects, their base that needs help. The impulse to keep spending is incredibly powerful.
As we’ve seen here in New York, that kind of dynamic leads to a very bleak place indeed, where our choices become more and more limited by the burden of debt and other financial obligations that we carry on our backs.
Many liberals wanted to see all of the tax cuts expire. Then a new deal could be worked on but if no deal could be reached the deficit would be reduced considerably.
Obama is lame.
Don’t worry. The TEA Party will rescue the country. They promised!
Besides, those tax cuts for the rich will trickle down and create jobs.
They’re such cowards, all of them, on both sides of the aisle. We truly need other political parties in this country to break this strangle hold of the Dems and Repubs…..
It’s about time the adults returned to Washington.
Too many cry babies, “waaaaa, some bad rich person is going to get a tax break, waaaaaaa”.
We should go back to the tax rates of the 50’s.
If democrats want to avoid giving a tax break to the millionaires and billionaires then why not make the cut off at 1 million dollars in income? Why 250K?
“It shows that both sides are going to continue to fight for their special interests and narrow constituencies, even if it bankrupts the country.”
The constituencies are same. The approach is different. One party believes that to stimulate the economy we need to cut taxes to ensure that people have more money to spend immediately. Even the president seems to understand that now. Like he said if taxes go up an average middle class person will have 2 to 3 thousand dollars less to spend in 2011.
The other part believes that to stimulate the economy we need to print money and pour it into government stimulus programs that should eventually create some income for some people so they can then spend it and stimulate the economy.
It is just two different approaches to the same problem. Same constituencies.
The non-partisan Congressional Budget Office (CBO) determined that extending unemployment benefits was one of the best things we could do for the economy right now. It would have a far greater stimulatory affect than extending any tax cuts (which was the least helpful of all the actions examined). Part of the reason was that unemployment benefits are almost immediately returned to the economy, whereas tax cuts – especially to the wealthy – are almost always saved.
To me, this “compromise” falls right into the previous conversation of Obama’s negotiating prowess… or lack of. I would hope his party stands up to him on this one, but suspect they won’t.
Paul, my understanding is that the 1mil mark was also rejected outright by republicans. I am not sure if (and if, why) any democrats would have a problem with it.
I didn’t expect this. I was expecting them to hammer out some sort of deal where the $250K limit was raised to a more realistic level in the $5-750K that would bypass the small businessmen, farmers, etc.
Oh well, you guys wanted compromise, this is the Washington version.
Democrats proposed the 1million mark and it was rejected flat out by republicans and conservative democrats. Both sides are idiots on this one. More interesting will be what happens after this passes. Gridlock?
“Part of the reason was that unemployment benefits are almost immediately returned to the economy, whereas tax cuts – especially to the wealthy – are almost always saved.”
Dave, I wonder what they mean by “saved”? A Piggy Bank? Or maybe the money is invested in a new venture, or given to a foundation that then gives the money to a university lab that works to make discoveries that will solve problems that may make the world a better place, and maybe create more jobs?
I don’t know about you, but I have never been hired by a poor person.
That said I don’t have a problem with extending unemployment. The government should help people that need that kind of help. I supposed the CBO is right but I don’t really like the sound of the “unemployment insurance stimulus program”. Sounds a little shaky.
Investing is not saving. They said saved, as in, in the bank.
I’ve heard the “I have never been hired by a poor person” repeated by conservative talk show hosts quite a bit.
I have been hired by lots of small business owners… none of whom are rich or would qualify for any of the high end tax cuts.
“I supposed the CBO is right but I don’t really like the sound of the “unemployment insurance stimulus program”. Sounds a little shaky.”
I’m not a fan of this either. Personally, I would be happy with extended tax cuts for everyone under 1 mil and call it a day.
Dave,
Do you actually think that wealthy individuals put their money in a savings account that earns 1% interest? Their “investments” are their savings. I would guess that for most their “savings” are money market funds that are made available to their investment advisers to spend when the market gets cranking like it is starting to do now. Stopping or slowing that doesn’t seem like a good idea.
I have also worked for several small business owners that would have less money to spend on developing their businesses if their taxes go up.
“I would be happy with extended tax cuts for everyone under 1 mil and call it a day.” Do we have any idea what this would cost?
Dave, what do you think is a fair portion of income to take via tax from a person that makes a million dollars a year?
I think this all points towards the need for a flat tax and a cut off where below a particular level of income you don’t pay income taxes.
The truth is that when it comes to the relative benefits of lower taxes vs. things like extension of unemployment benefits, nobody really knows. Intuitively, one would think that unemployment benefits would flow back into the economy faster and therefore have a greater effect, but the indirect impact of lower rates to the wealthy makes it difficult, if not impossible, to measure. Beware of those who speak to these issues with an air of certainty. If the economy does recover quicker than anticipated, you can be sure that proponents of both approaches will point to their measure(s) as the primary reason.
As the original piece alluded to, the real test will be what comes along behind this in the way of deficit reduction – although it is interesting that the conventional wisdom is that this compromise will get strong Republican support and resistance from liberal Democrats. Seems odd in the face of all the Republican election rhetoric. No?
Paul, no one saves money by investing it anything other than something relatively safe. It may not be a savings account from the local credit union, but it is something safe and secure that has a very minor impact on the immediate economy. You can splice the details of exactly how people “save” their money all you want… it doesn’t change the point the CBO was making. Which is that money spent on extended unemployment benefits is better for an economy in need of stimulation because that money is immediately and directly spent in the economy.
“I have also worked for several small business owners that would have less money to spend on developing their businesses if their taxes go up.”
Great, now that we agree that not only the rich hire people…
Under the tax cut proposal originally offered by the administration, small business owners would not have seen their taxes go up.
“Great, now that we agree that not only the rich hire people…” Nice try!
Dave if you run a small sole proprietorship (maybe like you were describing above as hiring you) your taxes would probably go up. Many of these folks claim their business earnings on their personal income taxes. Even if they set up an LLC they still claim all the earnings on their personal taxes. That is why so many people in the presidents own party are opposed to him on this.
I am sure the CBO has it right that unemployment payments will be quickly spent.
Just a quick question.
The extension of unemployment benefits does that mean someone who had been getting unemployment for the past 99 weeks under current law will now be able to get it for 13 MORE months? Or does it mean the current 99 weeks will stay the same?
Mervel,
That’s a fact-based question that can’t be answered with an ideological screed. Sorry, no room for that here.
This is a semi serious question. 99 weeks of unemployment insurance plus 13 more. At what point does unemployment insurance become welfare and which is the better deal and a better deal for whom?
Paul,
You are aware that a lot of sole proprietors -especially with the economy- have negative income? And many more only get modest incomes. The number who make over 250,000 a year is quite small and over a million almost unheard of – except for people like very successful surgeons, attorneys, actors, authors, etc.
On unemployment benefits I think someone he has been on it for 99 weeks has had time to apply for thousands of jobs, go on dozens of interviews, and take advantage of Unemployment office job interviewing and resume writing assistance. While some- like the disabled and those with criminal histories- may have unique challenges, I don’t think that describes most of the people who have been on unemployment for 99 weeks. People may have to grit their teeth and accept jobs in retail, on a farm, cleanin houses, etc.
Okay after trying the lazy way out I researched my question on my own. The 99 week cap stands what they just passed is not a 13 month additional extension beyond 99 weeks. What they were voting on was whether or not to continue providing the extra federal unemployment extension which would stop at 99 total weeks. States provide the first 26 weeks of unemployment.
At least that is how I understand it.