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Reports

Opportunity in a Tax Deal

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Posted on Dec 7, 2010

By Ruth Marcus

Maybe I’m getting carried away because it is the season to believe in miracles, but the tax-cut deal just might turn out to be a blessing in disguise.

Seriously.

I’ve never seen congressional Democrats, especially those in the House, so angry at the White House, and I can understand why. It’s galling that the Bush tax cuts will be in place throughout President Obama’s term. The arguments against letting the tax cuts expire on income more than $250,000—or even $1 million—were bogus. Only a fraction of small businesses would have been affected. The economic recovery wouldn’t have been threatened.

Even more galling was Republicans’ willingness to hold the extension of unemployment benefits hostage to a deal on extending the upper-bracket tax cuts. Republicans insisted that the cost of unemployment benefits be paid for—while blithely willing to pile up trillions more in debt by extending the tax cuts. 

And on the subject of galling: How could this have happened with Democrats in control of the White House and both houses of Congress? Waiting until after the election, with its predictably disastrous results for Democrats, left the administration bargaining from a position of weakness.

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Some blessing, right?

It could be. If Obama makes the most of the opportunity it presents, the deal offers him a relatively painless way to wriggle out of his most irresponsible campaign promise: to permanently extend the so-called middle-class tax cuts, the middle in this case amounting to 98 percent of households. Making those cuts permanent, as the president and congressional Democrats wanted, would cost more than $2 trillion over the next decade.

Now and for the next few years, in the midst of a faltering economic recovery, extending the middle-class tax cuts makes sense. Over the longer term, those cuts—premised on the notion that a predicted surplus would be big enough to pay off the debt and lower everyone’s taxes—are simply unaffordable.

In addition, the downside of the deal is not the marginal cost—about $70 billion—of extending the upper-income tax cuts for another few years along with the middle-class ones. In terms of stimulating the economy, which could badly use a boost, this is a stupid use of a relatively small amount of money, and the administration secured some real stimulus—refundable tax credits and the payroll tax credit—as part of the bargain. 

The real risk of extending all the tax cuts temporarily is that it increases the chance of extending all of them permanently. Smart people who viewed the extension of middle-class tax cuts as an exorbitant fait accompli at least wanted to make certain to avoid incurring the additional cost—$700 billion—of including the upper-bracket cuts. 

That was a reasonable worry, but I think the deficit commission report could change the risk assessment. It put Republicans, even extraordinarily conservative Republicans such as Oklahoma Sen. Tom Coburn, on record as being willing to raise tax revenue. And it illustrated the allure of a reformed tax code, with a broader base and fewer special-interest giveaways.

Hence, the potential blessing of extending the tax cuts for a few years. This is not the move I would have chosen, but it simultaneously creates space for a broader discussion of the tax system and forces action. The White House could seize the moment to shift the argument away from the stale question of whether rates should rise, and toward the more attractive playing field of how they can be lowered—and more revenue raised in the bargain.

It is easy to imagine the many ways in which such an effort could fall apart: over how much revenue to raise; over how much, and where, to cut spending alongside; over the thousands of imperiled tax breaks whose extinction would be fought by legions of interest groups.

It is fair to suspect that Republicans are more focused on defeating the president in 2012 than in crafting a bipartisan tax deal. It is fair to worry that tax history will repeat itself—that the White House will, in the heat of a re-election campaign, agree to another extension.

In politics as in religion, doubters do not lack for evidence to undergird their cynicism. But politicians might ask themselves: If you do not allow for the possibility of occasional legislative miracles, if your work is not aimed at achieving such transformational moments, then what’s the point, exactly, of being in this business? 

Ruth Marcus’ e-mail address is marcusr(at symbol)washpost.com.

© 2010, Washington Post Writers Group


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By Manny, December 10, 2010 at 10:21 am Link to this comment
(Unregistered commenter)

Boy Ruth, you sure are good at smearing lipstick on this pig of a decision.

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By marcus medler, December 9, 2010 at 1:11 am Link to this comment

I would love to see a tax—SYSTEM—overhaul- but these yahoos just did our
medical system overhaul!!

Soon, even the republican dudder heads and libertarian off the pagers will come
to understand the silly truth of; you can never escape death and taxes!!

hey guys it is taxes that pay you and give you health care—oops they are all rich
they only need to protect heaps of money from taxes hmm.

Ms Marcus your assumption that these “civic leaders” are working for the public’s
well being is wrong.

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By rob, December 9, 2010 at 12:03 am Link to this comment
(Unregistered commenter)

here we go again a bunch of whiners. tax cuts dont cost money, if they did we could raise taxes to 100% and be out of debt. big govt and dems our savior i cant believe you believe this crap. lbj opened the cookie jar social security and politicians have been robbbing it ever since. yea thats right democrats too. we really need the dept of education, health, energy, commerce…pathetic. gov’t runs the BIA and they cant find 5 billion..must of misplaced it. they will run obamacare too. its a spending and waste problem you idiots. with all the taxes they have in ca they should be rolling in cash….this truth dig site makes me want to puke. you wouldnt know truth if it bit u in the ass. what a bunch of winers…..this will never be published.. get a life

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By the worm, December 8, 2010 at 8:13 pm Link to this comment

Dear Ruth Marcus,

Thank you for you cool, reflective   contextual analysis.

Here’s the context in which most us in the middle class see the ‘compromise’:

$ 3,400,000,000 or $ 3.4 BILLION in ‘loans’, bailouts and guarantees given to
Wall Street from the public coffers.

And

The largest shift of debt (i.e. losses) from the private sector to the public in
American history.

And

Billionaires enjoying all the benefits of our country, but pay only 15% on their
incomes (carried interest).

And

100’s of 1000’s of ‘mandated customers’ brought to the insurance industry and
guaranteed the industry will get to keep 15-20% of the ‘premiums’ received
from the new ‘mandated customers’ (oh, if a ‘mandated customer’ cant afford to
pay the insurer, taxpayers will pay the insurer , but the insurer can still keep
15-20%). Only 80% of your and my premium has to be spent on actual health
care services.

And

Afghanistan, pre-emptive war (starting wars to avoid wars), torture, renditions,
etc continued.

And

Non-reform of the financial industry (six largest banks still too-big-to-fail,
and investment and commercial banking functions still greyed - so, your and
my deposits are at risk).

And

The system manipulated so banks can borrow from the government at 1%, to
buy government bonds that pay banks 3.4%; thus, ‘making’ 2.4% by simply
shuffling paper. (This is a great trick! And illustrates clearly why a huge finance
industry provides nothing to the nation)

And

The budget will be ‘balanced’ on the backs of the middle class while tax
gimmicks will persist for the wealthy and corporations.

Now, Ruth, I want you to know that Im someone who voted for Obama in the
primaries, in the general election, contributed to his campaign and the
campaigns of many other Democrats.

I dont think Im a cuckoo or uninformed - i subscribe to and read the Wall Street
Journal, New York Times and Financial Times and regularly read Politico,
TalkingPoints Memo, Daily Beast, Huffington, etc.

So, while I admire your rationalizations and projections regarding Obama’s
motives, I think the broader context reveals a politician who holds conservative
Republican views and should run on the Republican ticket.

In fact, I have it on the highest authorities that a new age of bi-partisanship
will give us new choices in 2012 .....

                            YOU HEARD IT HERE FIRST !

                              2012 REPUBLICAN TICKET

                          Mitch McConnell for President
                                          &
                        Barak Obama for Vice President

And their campaign slogan has already been focus group tested:

                          “MORE FOR THOSE WITH MORE!”

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G.Anderson's avatar

By G.Anderson, December 8, 2010 at 6:27 pm Link to this comment

As usual Ruth you missed some important issues. First off there is the payroll tax cut.
As someone pointed out here yesterday, cutting the payroll tax, might be a Trojan
horse, designed to lead to a permanent cut to social security.  More than likely there
will be pressure to continue the payroll tax cut after it expires. Just like now due to a
poorly functioning economy.  This would undoubtedly lead to a problem with social
security, and might create just the wedge the enemy needs to gut it just like they have
always wanted to. Isn’t it the policy of this administration never to negotiate with the
enemy? Republicans are the enemies of the people, and should never be trusted.

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By Badger, December 8, 2010 at 1:18 pm Link to this comment
(Unregistered commenter)

Ruthie, you forgot to include your Santa Claus wish list.

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By morristhewise, December 8, 2010 at 11:36 am Link to this comment

Unemployed workers deserve our admiration for their noble but failed attempt to become productive citizens. The guilty are those who could not run a profitable business and terminated their employment. It might take forever but lets continue supporting those who tried and failed until they find another job.

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who'syourdebs's avatar

By who'syourdebs, December 8, 2010 at 11:23 am Link to this comment

First we had voodoo science—now we have voodoo journalism. I read this article twice, looking for that silver lining, but still could not see it. Strange that Truthdig has so little to say on the tax giveaway fiasco that Obama hath wrought. One article? And this is it? Caving has surely become our president’s modus operandi—what a wimp. Say, Russ Feingold needs a job. Why don’t we make him the Demo’s presidential hopeful in 2012? I might even contribute $$$ to that campaign. It would be refreshing to have a Democrat in the White House. There sure isn’t one in there now. And by the way, I wonder how much Ruth Marcus is worth. Bet it’s a lot more than yours truly.

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By Inherit The Wind, December 8, 2010 at 7:47 am Link to this comment

If you stand for nothing, you’ll stand for anything.

This President has never been willing to hold firm for any position.  He “plays it safe” and so, allows the GOP to endanger our safety.

Sometimes you gotta take the pain and lance the boil or it will kill you.

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By RGO, December 8, 2010 at 6:52 am Link to this comment

“The real risk of extending all the tax cuts temporarily is that it increases the chance of extending all of them permanently.”

If these tax cuts are not repealed now, I do not think there is any hope for future elimination.

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By ardee, December 8, 2010 at 6:43 am Link to this comment

From each according to ability, to each according to need.

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By yeh, December 8, 2010 at 1:08 am Link to this comment
(Unregistered commenter)

Does Obama understand the long term harm to this country and regular people with all the deficit from the tax cut?

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By Bill, December 7, 2010 at 10:51 pm Link to this comment
(Unregistered commenter)

Exactly cruxpuppy, could not have said it better myself.

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By cruxpuppy, December 7, 2010 at 9:57 pm Link to this comment

You miss the point, Ruth, in your effort to rationalize political expediency. The point is the principle of progressive taxation. This is what Obama glibly sacrifices in his futile attempt to be all things to all people. He won’t stand and fight, he consistently takes the path of least resistance, he demonstrates to all that he has the courage of a spineless weasel. The Republicans won’t like him any more and his own constituency is beginning to positively hate him. Call the Obama Administration the “bait & switch” presidency. He’s so inflated by notions of himself as President and Michele is so blown away by her $635 shoes, that he has lost the capacity to feel shame for his own self-betrayal. He doesn’t give a shit about any principle, he’s too impressed with himself as President.

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By Corporate Jesus Loves Obama, December 7, 2010 at 9:35 pm Link to this comment
(Unregistered commenter)

What a joke.  We’ve watched this guy govern for two years.  He’s either been running scared, or he’s been complicit with the ruling corporate oligarchy from day one.  That you attribute to him some kind of far sighted tactical maneuver is simply a fantasy that hurts us all.  Truth is we need to organize and overthrow the two party system and end the money based corruption in the government that has/will/is ruining this country.  Sadly, I don’t see it happening.

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