Monday, December 6, 2010

Obama Reaches Deal With GOP Over Tax Cuts

From a USA Today article:
President Obama just announced a tentative deal with Republicans on extending the sweeping tax cuts signed by President George W. Bush nearly a decade ago.

The deal extends all the tax cuts for two years, including those on upper-income Americans that Obama wanted to end. As a result, the debate over the tax cuts will have to be joined again during the 2012 presidential campaign.

Obama won a 13-month extension of unemployment insurance, a reduction in employee payroll taxes next year, and the continuation of a variety of tax credits aimed at lower- and middle-income Americans.

The payroll tax cut would save a worker with $40,000 in income $800 next year. For someone making $100,000, the tax break would be $2,000.

The payroll tax cut and unemployment insurance extension should provide at least $176 billion in economic stimulus next year, the White House said.

Republicans won a cut in the estate tax to 35% and a higher $5 million exemption on assets.
Here are the details of the deal:
  • Extends unemployment insurance for 13 months. Two million workers in December, and 7 million over the next year, would have lost benefits otherwise.
  • Provides a one-year, 2 percentage point reduction in employees' Social Security payroll taxes, lowering the rate from 6.2% to 4.2%, at a cost of $120 billion.
  • Keeps the Earned Income Tax Credit and American Opportunity Tax Credit increases from last year's economic stimulus law, for another $40 billion in tax cuts for families and students.
  • Allows businesses to write off 100% of their capital purchases next year.
  • Sets the estate tax at 35% for two years, with a $5 million exemption on assets that's higher than last year's $3.5 million. The rate came down under Bush's policy from 55% before 2001 to 45% in 2009 before expiring this year. It was set to return at 55% next year.
  • Protects millions of taxpayers from seeing their taxes raised in 2010 and 2011 under the Alternative Minimum Tax.
I think this is a bad idea.  While I find the aspects of the deal good, I believe it was bad politics - particularly for the Democrats.  Should the economy improve over the next two years, the Republicans can claim it was the extension of the tax cuts that helped.  If the economy doesn't do well, the Republicans could claim that the Democrats didn't go far enough - like their arguments in the past, by extending the tax cuts and not making them permanent, they could assert that the economy lagged because of uncertainty after the proposed expiration date.

The Democrats should have pushed for the middle class tax cuts and only the middle class tax cuts.  If the Republicans weren't willing to compromise, then the tax cuts in their entirity should have been allowed to expire and Democrats sould have attacked Republicans for their obstruction.  Democrats could have then taken full credit for the windfalls from the increased tax revenue over the next two years.


  1. As I have stated in previous posts, corporations are having record profits. To some in the Democratic party this is an outrage because of the high unemployment. As a result, they want to increase taxes on this success. This is the absolute incorrect solution to our problems. Businesses are not expanding because concerned about the threat of higher taxes, governmental regulation and mandated health care. I am in favor of the current health reform act because I understand it. However, many business owners do not and due to Obama's lack of leadership, he left the door open to Rusty the Chickenhawk and his ilk to demagogue the bill. As a result businesses are not expanding and business expansion is the only way to lower unemployment. What Obama needs to do is tell the left wing of his party to shut up. They need to be told, do you prefer a wingnut like Palin or do you want me? America is tired of handout governmental programs because we can not compete with China on these terms. Obama needs to show he is business friendly. He can do this by declaring victory, not defeat. He can achieve this by beating the Republicans at their game. He needs to cut some governmental programs. Which ones I do not know. All I know with the billions of dollars that are spent, he better be able to find one. Announce the cut and reduce some of the regulations. Let the world know we are serious about our deficit and that we are open for business.

  2. President Bush had some proposed budget cuts for some programs back in 2006. I remember it getting some press coverage. While I didn't agree with all the cuts, I thought there were some good opportunities for the government to save money, like cuts for the USDA's Rural Telephone Bank - at the time, I thought that programs such as the Rural Telephone Bank had become somewhat unnecessary due to advanced technology like cellular telephones.

    Obama and the Democrats seriously need to put some programs to the chopping block, or at least make some much needed reductions, and they would need to publicize their cuts. This is also a matter that Republicans would most likely cooperate on, and if they choose not to cut a program because they like it (for instance any faith based initiatives), Democrats can pounce on their hypocrisy...

  3. Why is it that both parties and I mean both parties forget that 40% or so of Americans are Republican and 40% are Democrat but what really controls this country is the remaining 20%. It seems to me that the Democrats really missed what the country said in the last election. The country wants and needs jobs, jobs and more jobs. They are really concerned with this mounting deficit and do not want anymore government programs. When the entire country has had to tighten their belt they wonder why the Federal government can not do the same thing. The Democrats have a choice. They can lead or they can follow. The decision is theirs.

  4. That is why I am so confused about California. The state is in such a bad place but nobody seems willing to make the necessary cuts. Sure it will hurt, but you gotta start somewhere and when things are better you can reevaluate those programs that were cut. Maybe they were unnecessary...


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