President Barack Obama's disappointing tax cut deal with congressional Republicans is a surrender to unreasonable demands rather than a fair compromise. The Republicans successfully held hostage an extension of federal help for the jobless in exchange for extending Bush-era tax cuts to the wealthy. It is a bad trade made even worse by throwing in even more tax cuts that add to the federal deficit without significantly stimulating the economy. This is a cynical Washington maneuver by both sides that lacks intellectual vigor and postpones hard choices, and congressional Democrats should reject it unless it is substantially revised.
It is bad enough that Obama agreed to extend the Bush tax cuts for families with incomes over $250,000 for the next two years and failed to persuade Republicans to accept a higher threshold of $1 million in income. This deal provides even more tax breaks to the country's wealthiest households and adds $900 billion to the national debt over the next two years. So much for all that tough talk about reducing the deficit.
For example, the estate tax is scheduled to reset in 2011 with a maximum rate of 55 percent on estates of $1 million or more. This deal would impose a maximum rate of 35 percent on estates of $5 million or more, reflecting another Republican priority. That is far too generous.
Another example: The president and congressional Republicans agreed to a 2 percent cut in payroll taxes for one year. While every working American would enjoy some benefit, those making $106,800 or more in 2011 would get the maximum $2,136 tax cut. A cut in payroll taxes can stimulate the economy, but it should have been targeted to middle- and lower-income households who are more likely to spend the money. It makes no sense to cut payroll taxes for all and deprive the Social Security system of the money just as the president's deficit commission and fiscal conservatives are focused on shoring up the program's future solvency.
Obama was particularly defensive in a news conference Tuesday, contending that Democrats unhappy with the tax cut package are more interested in intellectual purity than pragmatic compromise. His concern about unemployed Americans on the verge of losing their benefits is commendable. But this deal is not as defensible as the compromises President Bill Clinton made with congressional Republicans after the 1994 elections with his triangulation strategy. The Bush-era tax cuts were not defensible when they were approved, and extending them all is not defensible amid soaring deficits. Neither is embracing a cut in estate taxes that is even more generous than in the Bush administration's final year. Or cutting payroll taxes for all.
The president misplayed his hand, and he should have been firmer and more public in his opposition. The American people in large numbers were on Obama's side on the issue of tax cuts for the wealthy. He failed to capitalize on that support or make a coherent case for fiscal discipline. After offering such a compelling message in his campaign, Obama as president has consistently allowed Republicans to drive the public debate even when the facts are on his side.
The result is another irresponsible deal that promises tax cuts for all and pain for no one. The president contended Tuesday that in 2012, when the tax cuts are set to expire again, he will be able to successfully argue to let taxes rise on the wealthy. But it is far from clear he will fare any better making his case in a presidential campaign than he has this year. What is clear is that due to the political dysfunction of both parties, this nation is set to add another $900 billion to the debt and pretend the bill will never come due.