As of this writing, it appears the Democrats and the Republicans have reached what they are calling a “compromise” solution on the thorny issue of extending the tax cuts that were originally initiated back in 2001 and 2003 under President Bush. It’s funny, these politicians… they think giving everybody pretty much what they want is a compromise.
In case you’ve not been paying attention, these tax cuts were enacted back in the early days of President Bush’s presidency. They were part of the centerpiece of the Republican agenda at the time. They were supposed to spur the economy, which would bring in additional revenue, and therefore not be a contributor to the deficit problem.
Of course, it didn’t work out that way. It might indeed have helped spur the economy, but most experts give that credit to the housing boom and deregulation that led to easy mortgages for everyone. Of course, we all know what that eventually led to. But the deficits exploded under President Bush, to the biggest in our history. And the past two years, under President Obama’s stewardship, they’ve exploded even further.
Now those tax cuts are set to expire. One has to assume that the reason they had an expiration date at all was to see how things transpired, and where the country stood at the time of the expiration. So where do we stand? We are in the worst of all situations. We have a severe recession, and standard economic theory says that you don’t raise taxes in a recession. But we also have massive deficits, which many consider a major problem as far as getting out of the recession.
There is also the issue of extending unemployment benefits for the long term unemployed. With the unemployment rate approaching 10%, do we really want to cut off benefits for those that aren’t able to find work? That seems a heartless, and somewhat self-defeating measure, in that those people will not have funds to spend, and spending is what spurs the economy.
Our political parties take very predictable positions on these two issues. The Democrats call for extending unemployment benefits. They also want to extend the tax cuts, but only for the lower and middle classes; those making over $250,000 would see their rates go back up to what they were under President Clinton. They state that we need to take measures to control the deficit, and extending it for millionaires and billionaires just doesn’t make sense. By some estimates, it will lead to $700 billion in lower revenue.
The Republicans voted down extending unemployment benefits because they are worried about the deficit, and say we can’t afford to do that. But they also won’t tolerate the tax cuts not being extended for everyone, including the wealthy and super wealthy. They say you can’t raise taxes in a recession, and that raising taxes on the wealthy will hurt job creation.
A compromise brought up by some Democratic congressmen sought to extend the cuts for all those making under $1 million, which comprises 98% of the population. That was a non-starter for the Republicans. They insist it’s all or nothing.
So what do our genius leaders do? Just what you would expect. As a compromise, they’ve decided to give everything to everyone. They will extend the unemployment benefits, and also extend the tax cuts for everyone. And while they’re at it, they threw in a one-year, two percent cut in the payroll tax for all workers.
Seems like a good plan, right? Everyone gets what they want! And as usual, they don’t have any corresponding cuts in spending, so what they’ve essentially done is give money out to the rich, the middle class, the poor and the unemployed. Problem solved.
What happened to the Republicans so worried about adding to the debt by extending unemployment? What happened to the Democrats worried about the loss of revenue from the tax cuts for the wealthy? They’ve all abdicated their positions to be able to say they got what they wanted. And they call this leadership? I call it doing what our government has been doing for years—just give everyone what they want. I guess it will get them votes; they can all claim to have gotten what they were pushing for.
It sure doesn’t seem like any of the arguments make sense under closer scrutiny. The tax rates were higher for the wealthy under President Clinton, and the economy boomed. We had lower rates under Bush earlier this decade, and that didn’t stop the economy from tanking. I am a fervent believer in lower taxes, but you have to control spending accordingly, or we will soon be going the way of Greece and Ireland, and looking for other countries to bail us out.
President Obama called the bipartisan agreement “the right thing to do.” He did stress his displeasure with several aspects of the agreement, especially the extended tax cuts for the highest earners. But he said that he didn’t want to risk the expiration of the middle-class tax cuts in the likely event of a lengthy impasse between Democrats and Republicans in Congress. “It would be a grave injustice to let taxes go up for these people,” he said of middle-class workers.
There is still a possibility that this could come unraveled, if the Democratic congress decides to derail it by withholding their votes, and creating an impasse that will force the Republicans to stand by their pledge to get either all the tax cuts passed or allow none for anyone. Political points scored on all sides, but nobody gets what they really wanted.
That’s unlikely, given the propensity for our politicians to give everyone what they want, consequences be damned. So that’s what we’ll get. It’s not compromise. It’s letting everyone have their cake. It’s the new paradigm of American politics.