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What do you think of Obama’s tax deal?

By Josh Richman
Monday, December 6th, 2010 at 10:23 pm in economy, Obama presidency, taxes.

Per the New York Times:

WASHINGTON — President Obama announced a tentative deal with Congressional Republicans on Monday to extend the Bush-era tax cuts at all income levels for two years as part of a package that would also keep benefits flowing to the long-term unemployed, cut payroll taxes for all workers for a year and take other steps to bolster the economy.

The deal appeared to resolve the first major standoff since the midterm elections between the White House and newly empowered Republicans on Capitol Hill. But it also highlighted the strains Mr. Obama faces in his own party as he navigates between a desire to get things done and a retreat from his own positions and the principles of many liberals.

Congressional Democrats pointedly noted that they had yet to agree to any deal, even as many Republicans signaled that they would go along.

Mr. Obama said that he did not like some elements of the framework, but that he had agreed to it to avoid having taxes increase for middle class Americans at the end of the year. He said that in return for agreeing to Republican demands that income tax rates not go up on upper-income brackets, he had secured substantial assistance to lower- and middle-income workers as well as the unemployed.

“It’s not perfect, but this compromise is an essential step on the road to recovery,” Mr. Obama said. “It will stop middle-class taxes from going up. It will spur our private sector to create millions of new jobs, and add momentum that our economy badly needs.”

The package would cost about $900 billion over the next two years, to be financed entirely by adding to the national debt, at a time when both parties are professing a desire to begin addressing long-term fiscal imbalances.

It would reduce the 6.2 percent Social Security payroll tax on all wage earners by two percentage points for one year, putting more money in the paychecks of workers. For a family earning $50,000 a year, it would amount to a savings of $1,000.

For a worker slated to pay the maximum tax, $6,621.60 on income of $106,800 or more in 2011, the cut would mean a savings of $2,136. That would replace the central tax break for middle- and low-income Americans in last year’s economic stimulus measure, White House officials said.
The deal would also continue a college-tuition tax credit for some families, expand the earned-income tax credit and allow businesses to write off the cost of certain equipment purchases. The top rate of 15 percent on capital gains and dividends would remain in place for two years, and the alternative minimum tax would be adjusted so that as many as 21 million households would not be hit by it.

In addition, the agreement provides for a 13-month extension of jobless aid for the long-term unemployed. Benefits have already started to run out for some people, and as many as seven million people would potentially lose assistance within the next year, officials said.

Cooperation or cave-in? Discuss.

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  • Mae Huang

    Leaving Gitmo open.
    No trials for terrorists
    30,000-soldier surge in Afghanistan.
    Re-upping the Patriot Act.
    And now Extending tax cuts.

    Has Obama delivered the hope and change he promised?

    83% increase in Federal spending.
    Closed-door government
    All major unions waivered from Obamacare (222 so far)
    Oilspills
    Wikileaks
    Quid-pro-quo deals
    Growing unemployment
    Soaring inflation.

    And now extending tax cuts.

  • ted ford

    I like the deal. The 2% drop in the employment tax roughly offsets the retention of th Bush tax cut for those over $250 k — and there was absolutely no chance of dropping this. There is a $500 bn stimulous impact which should positively affect the national economy heading into the 2012 election. The balance of the cuts sets up nicely for the impending discussion of how to change the entire national taxation system. I like many of the recommendations of the tax commission, and would like to see the introduction of a consumption tax and less reliance on income tax.

  • John W

    I’m not thrilled with the estate tax part of it, but I’m really annoyed with my fellow Dems who are giving Obama such a hard time about “caving.” I’ve already written to McNerney, urging him to support the deal, which I’m pretty sure he’d do anyway. The left wing professes concern about the deficit. Yeah, like Mike Tyson’s concern about workplace violence! If they really cared that much, they wouldn’t be whining about just the $700 billion the tax cuts on income above $250k would cost over 10 years. They’d also talk about the $3 trillion the rest of the cuts cost. They profess concern about people losing unemployment benefits. yet, they’re willing to throw them under the bus just to have a food fight with the Republicans. What, they expected to have more leverage in January, when the GOP will have a large House majority and perhaps a working majority with blue dog Dems in the Senate on some issues? I like the business investment writeoffs and the payroll tax holiday. I’d feel better about the income tax cut extensions if I knew they would end in two years or be replaced by income tax reform along the lines proposed by the Debt Commission. The estate tax ($5 mil exempt and 35% tax above that) stinks. I’m all for protecting family owned and operated farms and businesses against forced sales. But I don’t see why Sally should be able to inherit Uncle Harry’s multi-million dollar Berkshire Hathaway stock, on which tax has never been paid, and not pay taxes on that inheritance income, while people who get their income from working have to pay payroll and income taxes.

  • Laura Sanborn

    While I would like to see unemployment benefits extended, it’s not worth it if it means accepting this fiscally reckless package.

  • John W

    Re: #4

    Tell that to a family that is in dire straits and for whom those unemployment benefits might make the difference between survival or living out of a car. With due respect to my fellow Democrats who are at the left end of the spectrum, they have never been known for being fiscal hawks. This noise is not about fiscal responsibilty. They just don’t like the idea of higher income people getting a tax cut, fiscally responsible or not.

  • Laura Sanborn

    John W, I am a left-leaning fiscal conservative. But not in the bastardized sense that the modern Republican Party defines and defiles fiscal conservatism. I left the Republican Party when they purged all the deficit hawks and liberal Republicans out of the party. The GOP has become the party of fiscal recklessness, of tax cuts, tax cuts, and more tax cuts — the deficit be damned — and America’s future be damned.

    America was running a huge budget surplus at the end of Democrat Bill Clinton’s two terms, and a 1 trillion dollar deficit at end of Republican George W. Bush’s two terms. Combine the Bush tax cuts with two unfunded wars, new unfunded domestic spending programs under Bush, financial firms gambling with the global economy like it was their personal slot machine which ignited the Great Recession, and here we are, with massive deficits as far as the eye can see. The notion that the GOP is the party of balanced budgets is a Republican Big Lie. The facts show otherwise.

    As far as whether I “just don’t like the idea of higher income people getting a tax cut” — what I don’t like is destroying this nation’s future by dumping a massive debt and a crumbling infrastructure on today’s children. I donated to Obama’s campaign and voted for him with the clear understanding that he would allow tax cuts for those in MY tax bracket to expire.

  • ctenorio

    We have always felt like we have the right to say what we feel and stand up for our position no matter how different it is from everyone elses. Or how ridiculous we sound.

    There will always be people who think they can do a better job or have a better answer, some will actually attempt to do a better job, most will just continue love to hear themselves complain.

    Since being in agreement rarely inspires conversation, disagreement is what gets the most attention.

    Republican and Democratic political junkies will forever talk about ideals and principles and forget that this is the real world with real disasters and real lives.

    Most of them love a good political fight.. it’s like gambling… always waiting to see what they win in… it’s a rush. It has nothing to do with thinking about the good of the people.. it’s about belonging to the winning party, the preferred class, the better social group.

    We have a lot of growing up to do. Maybe if we all suffered through a bit of tragedy, (not just those who are suffering now) we would understand what it means to mature.

    But then what would be fight about.

  • John W

    Laura Sanborn. I know all that history in depth and agree with most of what you say. The fact remains, given the posture of Congressional Republicans, Obama did what was necessary. The alternative (digging in his heels) was a scenario that would have deprived 2 million people of desperately needed unemployment benefits, disrupted the markets and threatened what little economic recovery we have going. I highly recommend that you read Wednesday morning’s editorial in the New York Times. They blasted the deal Tuesday. But, after Obama’s Tuesday afternoon press conference, they ran a follow-up editorial saying Obama’s deal was the best Democrats were going to see and saying they should vote for it. I say Obama acted like a grown up, and the left-wing activists in my party need to stop crying like two-year olds. I too gave to Obama — the max allowed for both the primary and general elections. Unlike others, I’m not a fair-weather friend. He’s got my support, and I’ll fight against anybody who tries to pull a Ted Kennedy circa 1980.

  • Laura Sanborn

    John W, I read the NYT editorial. I am not convinced.

    “Without this bargain, income taxes on the middle class would rise.”
    They will rise to what they were during the Clinton booming economy years.

    “Unemployment insurance for millions of Americans would expire.”
    Agreed that extending unemployment benefits is a good thing.

    “And many other important tax breaks for low- and middle-income workers — including a 2 percent payroll tax cut and college tuition credits — would not be possible.”
    The SS payroll tax cut is massive and it is reckless. College tuition tax credits are a good thing.

    “If angry Democrats blow up the deal, they will be left vainly groping for something better in a new Congress where they will have far less influence than they have now.”
    I think no deal is better than this deal.

    “The middle class and the unemployed would be seriously hurt.”
    The middle class is not going to be “seriously hurt” by the tax rates we had in the Clinton years. The long-term unemployed would be seriously hurt, agreed.

    If the point of most of this package is to act as a stimulus it is misdirected. Across the board tax cuts have a very weak bang for the buck as an economic stimulus. Targeted spending works a lot better.

    More importantly, it’s bloody obvious that tax cuts are hard to undo once they are created for “temporary” purposes. Particularly troublesome is the defunding of SS that that package includes — creating pressure to make it permanent and making SS financially unsound.

    We are never going to restore this nation to fiscal sanity if elected officials keep buying votes with tax cuts. The United States has one of the lowest tax burdens in the developed world. Those who keep demanding more tax cuts that we cannot afford are the ones who are “crying like two-year olds”.

  • ralph hoffmann

    The Federal deficits were caused by our invasions of Iraq and Afghanistan, which were done to protect our then sources of energy. Our Country must stay focused on having energy independence from unfriendly areas. Wars waste money. Domestic public transportation improvements and non-fossil-fuel electricity generation both will save money.

  • ralph hoffmann

    Domestic job creation in public transportation and non-fossil-fuel electricity generation are the best to reduce unemployment.

  • JK

    Average bus ridership in Alameda County: 2.6 people per bus per hour.
    Average mileage for AC Transit bus: 4 mpg
    Average gallons of gas used per hour by Van Hool bus in Alameda County: 3
    Average gallons per hour: 1 gallon/person/hour
    Average distance per trip: 2 miles
    Average cost for Van Hool bus in AC Transit: $350k
    Average cost of AC Transit fuel cell bus: $1.5 million

    So your public transportation is burning diesel at 10x the rate of a private vehicle, and costs 20x the amount of a private vehicle.

    It would be cheaper and less polluting to hire BMW taxis for every person in Alameda County who wanted to go on a bus, and it would be take less time for them to get where they are going.

    Cost of Iraq and Afghanistan wars are $805 Billion.
    Cost of Obama Stimulus spending package: $870 Billion
    83% increase in federal spending in the past 2 years.

    Guantanamo: Still open
    Warrantless wiretapping: Increased
    Airport child and nun groping: check
    Patriot Act: Expanded

    Incandescent light-bulbs: Outlawed
    Non-fossil fuel nuclear plants: No new ones approved
    Non-fossil fuel wind generation: Reduced
    Non-fossil fuel solar cell produce Solyndra: Shipping government subsidies with each package to survive
    Electric “coal” cars: requiring 50% tax subsidies
    Hyrbids: 35% of all hybrids purchased by government
    CA Electrical generation: Unable to cope with even 100,000 electrical cars

    There hasn’t been a nuclear power plant opened in the US over 30 years.

    Number of new 500+ MW solar energy plants approved in past decade in CA: 4

    Cost of transmission lines for new solar plants: $1.5 Milion per mile.

    Area covered by one solar energy plant (ex: Blythe Solar Millenium): 9400 acres

    Area covered by Alaskan ANWR oil drilling: 2000 acres

  • Josh Richman

    JK, where’d you get those ridership figures? At a glance, they don’t seem to gibe with what AC Transit reports.

    Also, for context, about a third of the Recovery Act’s cost – $288 billion – was in tax cuts. And the Bush tax cuts cost at least about $2 trillion: roughly $1.6 trillon from the 2001 cuts, and about $350 billion more in 2003.

  • Laura Sanborn

    What is an ‘electric “coal” car’? If you are referring to BEV cars, the federal subsidy is $7500 per car, not 50%.
    http://www.fueleconomy.gov/feg/taxevb.shtml

    California can cope with a lot more than 100,000 electric cars. Time of Use metering creates a strong incentive to charge electric cars at night, when rates are dirt cheap and there is plenty of excess electrical generating and grid capacity.

    Incandescent light bulbs are being banned by legislation signed in 2007 by George W Bush.

    CA solar electric power plants totaling nearly 3300 MW capacity have been approved, almost all of which was approved in the past few months. Applications are being reviewed for nearly another 1000 MW of solar power plant capacity. The process is moving along.
    http://www.energy.ca.gov/siting/solar/index.html

    Comparing the stimulus package to the Iraq war is ludicrous. The stimulus package helped the economy, and did not kill tens of thousands of people. The wars will still be accumulating costs for decades into the future, with estimated costs in excess of 3 trillion dollars.
    http://www.washingtonpost.com/wp-dyn/content/article/2010/09/03/AR2010090302200.html

  • John W

    Re: #9

    Yes, I agree. Bush tax cuts never should have happened, with or without the wars and the unfunded prescription drug progam. I would prefer to let all the cuts (including middle class) expire but do not share your confidence that the economy could deal with that right now. I’ve got mixed feelings on the payroll tax cut, for the reasons you stated. However, it should serve as a good stimulus. It’s clear that approval of any more targeted spending stimulus is not in the cards. Since the payroll tax cut only hits the first $106k of wages, it may be almost as effective as targeted spending. I share your concern that people will want to make it permanent, but the implications of doing that will be so obvious that I can’t see that happening. My understanding is that it will add to the deficit but will not rob SS. It will be paid back from the general fund in the same way as the trust fund IOU’s are being paid back. All in all, I still think approval of the tax deal beats the alternative.

  • ralph hoffmann

    Josh, The County Connection in Central Contra Costa (more suburban) reports ~ 14 passengers per bus per hour. JK’s fuel useages and capital costs for buses are high, but 80% of the cost of operating a bus is operator wages and benefits anyhow. Those war costs are way low and growing. Nuclear Power’s the way to go if we can get over our fears of Three Mile Island (no one injured) and Russia’s Chernobil.

  • John W

    Congrats to the House Dems. By refusing to vote for Obama’s tax deal with the Repubs, 185 thousand Californians lose unemployment benefits this Saturday. 2 million people lose benefits by Christmas. Repubs go for an even “better” deal in January (eliminate the estate tax completely and make the Bush tax cuts permanent; and no unemployment benefits). The economy loses a significant back door stimulus. Right wing talk radio has a field day, and Sarah Palin ramps up her run for the nomination. Who says we Dems can’t get anything done in Washington? Oh, I know, come lately deficit hawks on the left say the deal puts the nation further in debt in order to give money to the wealthy. Only problem with that argument is that the total cost of the two-year deal is $984 billion. According to USA Today, the parts that the Repubs love (high income tax cut extension and the estate tax cut) cost $103 billion — slightly more than 10% of the total package. Parts favored by Dems cost $336 billion. Parts favored by both parties cost $544 billion. As Forest Gump says, “stupid is as stupid does.”

  • ted ford

    John W. – I agree with you completely. The Democrats made a big mistake in reaffirming Pelosi as Speaker. Now, Obama will have to take her on directly. Peel off enough Democrats and hope that Boehner can deliver his caucus to pass the bill in the House. Pelosi has directly challenged her own President. bad move

  • Truthclubber

    Somewhere a Mormon with really white sideburns and a strong desire to move into a new house early in 2013 is ROTFLHAO at all of these hyper-partisan theatrics put on display courtesy of Nancy Pelosi.

    Boehner is just gonna trump that with a “we’ll just wait until Jan. 3rd and convene an emergency session that very day to get this done the right way with our new gains from November…”

  • Truthclubber

    I meant to say “Nancy (I was really behind Hillary all the way in 2007/8 and was really, really, really pissed big time at what this arrogant, can’t wait his turn, green behind the ears, upstart N****r and his team of race thugs did to her throughout that campaign, but I managed to hold it in check until now, when I have almost no power left, and wnat little I have is going to zero within a matter of weeks, so why not take a knive to his gonads while I still have a chance, to even the score for us sisters) Pelosi” — but that would have been too long for the previous post.