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Wednesday, December 08, 2010

The Tax Compromise: Who Is Happy And Who Is Not

The big news over the weekend which still has media and the blogopshere tapping away at their keyboards is the compromised deal that the White House reached with Republicans on a number of tax issue, including the continuation of all Bush-era tax cuts, an extension of unemployment insurance, payroll-tax cuts, incentives for businesses and tax credits.

Both the White House and Republicans bent a little, for lack of a better word, and compromised on issues that were not their preferred choice with the understanding that in Washington, you give and you take but to get anything done both sides have to be at the table negotiating.

Ezra Klein, whom a disagree ideologically almost 100 percent of the time with, looks at the numbers:

If you look at the numbers alone, the tax cut deal looks to have robbed Republicans blind. The GOP got around $95 billion in tax cuts for wealthy Americans and $30 billion in estate tax cuts. Democrats got $120 billion in payroll-tax cuts, $40 billion in refundable tax credits (Earned Income Tax Credit, Child Tax Credit and education tax credits), $56 billion in unemployment insurance, and, depending on how you count it, about $180 billion (two-year cost) or $30 billion (10-year cost) in new tax incentives for businesses to invest.

Then he asks the question of the day:

But that's not how it's being understood. Republicans are treating it as a victory, and liberals as a defeat. Which raises two separate questions: Why did Republicans give Obama so much? And why aren't Democrats happier about it?

Jennifer Rubin, the other side of the political ideological aisle over at Wapo, answers that very question:

There really is no other way to say it: the Republicans won, the liberal Democrats lost, and the president sided with the Republicans. The subject, of course, is an agreement to extend all the Bust tax cuts. The president tonight announced a "bipartisan framework" for agreement on, among other things, to extend the Bush tax cuts for two years. A Republican House aide tells me tonight it is "a damn good deal." And so it is, from the perspective of conservatives.

As they've been demanding, all of the Bush tax cuts are extended for two years. The estate tax that was due to pop back up to a rate of 55 percent was retained, but with a $5 million exemption and at a rate of 35 percent (better than Republicans privately expected). For that huge concession, the president extracted... a 13 month extension in unemployment benefits.

Now it's true that the deal includes a one-year payroll tax cut of 2 percent. Plus other tax credits -- the earned income credit, the child tax credit and the newly-created college credit -- all remain in place. And businesses will be allowed to expense 100 percent of their purchases for equipment. Liberals and White House spinners will argue that the White House "wanted" many of those tax credits and breaks, but in point of fact the Republicans didn't mind giving more tax breaks. It sounds better to slide those items into the White House's column, but really the only concession by the Republicans was on extension of the unemployment benefits.

Now while there are members of the right, politicians and pundits both, that have a problem with portions of this brokered deal, most on the right understand that to get you have to give and the whole purpose of a two party system is to make sure everyone is represented and act accordingly.

The liberal left has gone after Obama over this compromise full force, shutting down White House phone lines, accusing him of turning his back on his base, etc...

Here is the bottom line though. Republicans did not want 13 more months of unemployment benefits without some way to pay for it, but it is in the deal anyway without any offset.

Democrats did not want tax cuts to include the wealthy and it too is in the deal.

Those were the two major issues and according to Gallup's latest polling, those are the two parts of this deal that have two-thirds of American's support.

Two major elements included in the tax agreement reached Monday between President Barack Obama and Republican leaders in Congress meet with broad public support. Two-thirds of Americans (66%) favor extending the 2001 and 2003 tax cuts for all Americans for two years, and an identical number support extending unemployment benefits for the long-term unemployed.

We could get into the philosophical arguments all day about whether extending unemployment benefits encourages some people to not look for work or whether raising taxes on the wealthy is no more than redistribution of wealth to take from those that earned their money to pay for programs to hand to those that have not, but this deal is made and still has to pass through a Democratically controlled House of Representatives (until January when the GOP takes control) and the Democratically controlled Senate (in January Democrats will have less of a majority since 5 more GOP Senators will be seated), or everyone loses.

It is not a done deal, but if both Houses of Congress do not pass this deal, unemployment benefits will not be extended and taxes for every American will rise as of January 2011.

More from Ezra Klein, linked above:

If you're worried about stimulus, joblessness and the working poor, this is probably a better deal than you thought you were going to get. "It’s a bigger deal than anyone expected," says Bob Greenstein, president of the Center on Budget and Policy Priorities. "Both sides gave more expected and both sides got more than expected." The White House walked out of the negotiations with more stimulus than anyone had seen coming. But they did it in a way that made their staunchest allies feel left behind, and in many cases, utterly betrayed.

That the Obama administration has turned out to be fairly good at the inside Washington game of negotiations and legislative compromise and quite bad at communicating to the public and keeping their base excited is not what most would have predicted during the 2008 campaign. But it's true.

No deal, no compromise between Washington Republicans and Democrats, will satisfy the extreme portion of their base, yet Washington cannot come to a standstill while those extreme portions insist on complete purity to their ideals.

On a side note, it looks like Barack Obama has decided to lash out at both Republicans and his far left liberal base by calling the GOP "hostage takers" and Democrats "sanctimonious."

As a second side note... Harry Reid is trying to add another part to this compromise because he wants to add legalizing online poker into it.

Personally I don't have a problem with online poker but that is an issue unto itself and should have no place in a tax deal that already has so many critics with so little time to get it passed.

Harry Reid, in my opinion, is a moron.