House Democrats say Obama caved on tax-cut deal. Are they wrong?

Democrats in the House of Representatives issued a blunt message to President Obama Thursday: The tax deal he cut with Republican leaders is a bad one.

Politically, that argument has been reverberating in liberal circles all week. Liberals are angry that the president agreed to a two-year extension of Bush tax breaks for the richest Americans.

From a purely financial perspective, though, it’s not so clear that Mr. Obama and his White House team were bad negotiators.

By one tally, this week’s great tax-cut bargain includes $3 worth of proposals sought by Democrats for every $1 that Republicans fought for.

Here’s the run-down, as calculated by Moody’s Analytics, a forecasting firm in West Chester, Pa., which drew on numbers from the US Treasury, the Congressional Budget Office, and the nonpartisan Tax Policy Center.

Over two years, the overall cost of the tax-cut proposals, in terms of lost revenues for the Treasury, is $984 billion. Of that, the tax measures sought by Republicans accounted for $103 billion in lost revenues, the measures sought by Democrats accounted for $336 billion, and bipartisan measures $544 billion.

Both sides agreed that, with unemployment high and the economy still struggling to get into gear after recession, this was not a good time to let the Bush tax cuts expire for the vast majority of Americans. A two-year extension of those cuts, coupled with some business tax breaks, accounts for the bipartisan dollars in the tax-cut deal.

The $103 billion in tax breaks Republicans won include a two-year extension of low tax rates for households earning more than $250,000 – something Obama has long campaigned against – and a favorable estate-tax rate for wealthy Americans.

The $336 billion in Democrat-inspired tax cuts would benefit low- and middle-income Americans and businesses.

For working families, a payroll-tax cut ($120 billion) would mean extra take-home pay for all of next year. Extended jobless benefits ($50 billion) would help the long-term unemployed, also for one year. Smaller amounts totaling $21 billion would go to expand the child tax credit, a college-tuition aid program, and the earned-income tax credit for low-income Americans. For businesses, Obama also won accelerated depreciation of investments, worth $146 billion over two years.

Those numbers aren’t going to settle shouting matches over the tax proposal among columnists, pundits, and politicians. For instance, Republicans may have won a smaller dollar amount of tax breaks, but those dollars mean a lot to a core base of GOP donors. Obama’s tax proposals are spread more thinly throughout families and businesses, many of whom have little political loyalty to him.

But the numbers at least raise the question of whether Obama had a point earlier this week when he defended his dealmaking tactics. One political victory Obama may reap is this: Things like the payroll and business tax cuts might help lift the economy. If unemployment is lower come 2012, he’ll have a better chance of winning reelection.

“To get stuff done, we’re going to compromise” rather than accomplish nothing, Obama said in a White House press conference. But he rejected the idea that he had caved in on core principles.

“Not making the tax cuts for the wealthy permanent – that was a line in the sand,” he said.

During the press conference, Obama sought to defend his deal on several fronts.

He said the deal would help the economy recover, thanks in good measure to the newly negotiated payroll-tax and business depreciation breaks.

Many economists agree that the package would be positive for economic growth, although it also would boost federal debt. (Fiscal hawks say the really impressive bipartisan deal would be one that followed through on a commission’s recent proposals to reduce federal deficits.)

House Democrats, citing recent public opinion polls, say the fall election gave no mandate to extend tax cuts for the rich. They told Obama they don’t want to support the deal without changes.

Obama, in his press conference, agreed that public opinion is “on our side,” but defended his compromise to ensure that the economy won’t be hurt by a protracted political battle, given Republicans’ considerable leverage in Congress.

Democrats will have another opportunity to battle Republicans over tax breaks for the rich in two years, Obama argued.

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Comments (3)

  1. Submitted by David Greene on 12/10/2010 - 01:43 pm.

    “this week’s great tax-cut bargain includes $3 worth of proposals sought by Democrats for every $1 that Republicans fought for.”

    Ah, so 25% of the benefit of the deal goes to 2% of the population. Got it. That seems eminently fair.

  2. Submitted by Hénock Gugsa on 12/10/2010 - 10:16 pm.

    And then, as the saying goes, after all is said and done, there is more said than done.

    No guarantee of success, and no fall-back strategy to speak of. We’ve landed on a patch of quicksand here.

    I am strongly inclined to believe that the net result of the whole half a trillion dollar “deal” will not end up getting the economy out of the mire. We may see a little promising blip on the pulse reader for a quarter or two. But after that, it is all uncertainty and gloom.

  3. Submitted by Bernice Vetsch on 12/12/2010 - 03:10 pm.

    Both parties seek to do what is right for America, which means both of them should denounce this commission’s recommendations.

    What’s BAD for America is keeping the tax cuts for the wealthy that creating half of the Bush deficit (the other half came from unfunded wars in Iraq and Afghanistan). Did the wealthy create jobs? Yes – in India and China and Bangladesh – really good jobs that pay perhaps 25 to 50 cents per hour. Does America (or the world) need more of that? Of course not.

    My advise to Congress is to listen to Bernie Sanders and vote against this bill. Letting all the tax cuts expire will cause much less damage that short-term fixes tied to long-term additional debt of hundreds upon hundreds of billions, no matter how needed.

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