The Catholic University of America
Dec 10 2010

The Obama-Republican Tax Deal

Posted by Ernest Zampelli at 2:35 PM
2 comments
- Categories: Economy | Government & Civil Society

Though I’m a bit disappointed, I’m not at all surprised over the tax deal that’s been brokered between the Obama Administration and Congressional Republicans.  Granted, maybe something more palatable could have emerged had Obama engaged the issue much earlier.  Personally, I would have liked to see the tax cuts expire for high income households and the revenue generated transferred to shore up hemorrhaging state and local government budgets.  In that way, a budget deficit source would have been closed off while a spending source with one of the largest multiplier effects would have opened up.  Alas, that is water under the bridge.  The liberal left of the Democratic Party and progressive economists like Paul Krugman need to get over it.

In exchange for extending the high income tax cuts, the tax cuts for low and middle income Americans will continue and this should help in at least maintaining the slow rise in consumer spending that the economy seems to be experiencing.  Additionally, the extension of jobless benefits and the one year reduction in payroll taxes will put a bit more money mostly in the hands of those who will likely spend it rather than save it.  It’s like a second “mini” stimulus that should modestly expand aggregate demand and provide a little more oomph to our ongoing but fragile recovery.  What I really don’t like about the deal is Obama rolling over on the estate tax cut.  Its extension was an unnecessary gift to very high income households and to the Republican side of the aisle. 

Comments

Jim Youniss

Jim Youniss wrote on 12/10/10 3:08 PM

Several people have written to me to express their consternation
with the new estate tax limits. Before I make a judgment, I would like to know how many estates would qualify under the proposed raised limit. Before 2008, many people in the DC area with 2 homes would easily have had estates over $2 million, the previous non-taxable amount allowed for married couples.

During the Bush presidency when the estate issue was discussed, I read that less than 1% of all estates in the US
would have had to pay taxes. If we are to have a sensible discussion on the issue, we need to start with data on the value of estates in the US. How many would qualify to be
taxed if the limit were $2, 5, or 7 Million per couple?
Steve

Steve wrote on 12/10/10 5:25 PM

The extension of the Bush tax cuts for the wealthiest is disgusting, and it seems impressively hypocritical of Republicans arguing out of the other side of their mouths about decreasing debt. (The money in those cuts will be borrowed.) Obama does not seem to know how to horse trade, or how to get rhetorically in front of these issues so he doesn't have to make his supporters swallow such a bitter pill, or cynically say that he's opposed to high end tax cuts while his aides were circulating a Gallup poll to Democrats in Congress suggesting the extensions would be politically popular (see http://tinyurl.com/2fgt4ds) .

In Krugman's column today (http://tinyurl.com/24kq4b8), in which he argues pretty accurately in my view that Obama "has bought the release of some hostages only by providing the G.O.P. with new hostages," he concedes that the deal amounts to another short term stimulus. Then he adds "But here’s the thing: while the bad stuff in the deal lasts for two years, the not-so-bad stuff expires at the end of 2011. This means that we’re talking about a boost to growth next year — but growth in 2012 that would actually be slower than in the absence of the deal."

So, Ernie, is his math bad?

Steve

Write your comment



(it will not be displayed)



Leave this field empty: