In an astonishing turn about in policy, President Barack Obama has agreed with congressional Republican leaders on a package of tax incentives, including the full extension of the Bush tax cuts, in exchange for also extending unemployment benefits.
Republicans are cautiously optimistic. Democrats are incandescent in their anger.
According to the New York Times, the agreement consists of the following, besides extending the Bush tax cuts for another two years:
“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.”
Most analysts suggest that this agreement represents an absolute capitulation on the part of the Obama administration to the Republican view of using tax cuts to stimulate the economy. It is certainly a recognition that election results have consequences. Republicans will shortly control the House, where tax and budget legislation originates, and will perhaps have operational control of the Senate, which has a number of Democrats considered vulnerable in the upcoming 2012 elections.
There is some question, however, whether the agreement can pass in the current, lame duck Congress. Most congressional Democrats have an absolute antipathy toward “tax cuts for the rich,” even though they tend to be the sort of people who hire everyone else, an important consideration in this era of 9.8 percent unemployment.
On the other hand, if Democrats try to block the agreement, they risk raising taxes on everyone, including the middle class, albeit temporarily. The next Congress would surely pass the agreement, providing the Democrats with a sharp rebuke and setting up yet another issue for 2012.
Nevertheless, not even Obama is very happy with many of the provisions of the agreement. In often angry tones, Obama suggested that he detested many of the Republican-inspired tax cuts, but indicated that he was being forced to go along. There was no crowing about crossing the aisle or being bipartisan. Congressional Republicans were nowhere to be seen.
The political effects may be hard to determine right away. Democrats are certainly incensed at the President of their Party. Incredibly, many are considering Obama to be insufficiently liberal and are darkly hinting at a primary opponent for 2012.
On the other hand, President Obama may have declared independence from the liberals in his own party, which would redound to his benefit if it becomes an ongoing political strategy. Bill Clinton did it in his “triangulation” strategy. After getting his own shellacking in 1994, Clinton was comfortably reelected in 1996.
Source: Tax Deal Suggests New Path for Obama, David M. Herszenhorn and Jackie Calmes, New York Times, December 7th, 2010