Right Thinking From The Left Coast
We didn't lose the game; we just ran out of time. - Vince Lombardi

Monday, December 06, 2010

The Quick Deal

That didn’t take long.  Brace yourselves for Stimulus IV:

President Obama and congressional Republicans agreed Monday to a tentative deal that would extend for two years all the Bush-era income tax breaks set to expire on Dec. 31, continue unemployment benefits for an additional 13 months and cut payroll taxes for workers to encourage employers to start hiring.

...

Obama was able to extract an agreement from GOP leaders to support an additional 13 months of jobless benefits, a 2 percent employee payroll tax cut and extensions of several tax credits aimed at working families that were included in the stimulus bill.

The deal also would revive the estate tax, but it would exempt inheritances of up to $5 million for individuals and $10 million for couples. Democrats on Capitol Hill are strongly opposed to setting the cap at that high a level and to the 35 percent rate discussed by Obama and Republicans that would apply to the taxable portion of estates.

Several points to ponder. The report does not make clear how big a hole this is going to blow in the budget.  There’s a case to be made for keeping some supply-side tax cuts around to get the economy going, particularly the cut in payroll tax that will make hiring less expensive.  But combining the demand-side cuts with more unemployment spending is a recipe for even bigger budget woes with little contribution to economic growth (see Stimuluses I-III).

I expect the Limbaugh crowd to scream blue murder because the tax cuts have not been made permanent.  But that seems to me the only sensible policy—to keep taxes low in the immediate future with the anticipation of tightening down once the economy is better.  Taxes are going to have to go up eventually—they are currently at a 60-year low and we’re staring right down the barrel of a Baby Boomer retirement wave.  We’re not going to get out of this without paying for it.  But if we combine the tax hikes with tax reform—as Reagan did—we can minimize the impact on the economy.  A two year window is enough to get something done—maybe something along the line of Simpson-Bowles.

In other news, Obama has closed the deal with South Korea on lowering tariffs and making trade a bit freer.  This should have been done two years ago but better late than never.  This could mean billions to both countries.

These two stories—and you can throw in Obama’s recent federal pay freeze—open the possibility that Obama, like Clinton before him, got the message in November.  The real test will come when the new Congress begins to address the debt.  If he’s smart, he’ll embrace Simpson-Bowles as the framework for a potential deal, putting the Republicans on notice.

But this budget deal also hints at a potential interest among Republicans in governing, as opposed to just chucking eggs at Obama.  I’ve been worried that the GOP would insist on ideological purity rather than getting what they can from Obama.  Democrats seem to understand that getting most of what you want is a good thing, but Republicans seem a bit confused by the concept.  But this deal has pragmatism written all over it.

I’m actually feeling very slight twinges of what could possibly be a little bit of optimism.  We’ll see what happens in the 2011.  But, for now, there may be some positive things going on --- not just in the laws being passed, but in the thinking going on behind them.

Update: There is something very revealing about the Left’s extremely angry reaction to this deal.  Most of the center-left are OK with the deal, understand the need for compromise.  But the far Left is beside themselves this morning. I know people who are saying they’ll support Hillary in 2012 because of this (Really?  Hillary?  You really think Hillary is going to be to the left of Obama?)

First, this shows just how much of the far Left are really little babies .  Remember their sobbing reaction to getting 85% of what they wanted with healthcare reform?  Or their hysterical reactions to Simpson-Bowles, which countenances tax hikes and means testing for social programs?  They’re getting a lot of what they want—a 13-month extension of unemployment benefits, a payroll tax holiday, the return of the estate tax and a tax break that is temporary.  But to hear them blubber, you’d think that Obama had just re-instituted slavery or something.

And second, this shows just how many Democrats really are into the wealth envy game.  They’re not happy that they’re getting an unemployment benefits extension from a GOP Congress.  They’re outraged that taxes aren’t going up on the rich for two more years.  What kind of person thinks like that?

Posted by Hal_10000 on 12/06/10 at 11:43 PM in Politics   Law, & Economics  • (0) TrackbacksPermalink
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