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5 Ways to Look at Obama's Grand Bargain

The White House tax compromise is huge: a two-year extension of the Bush-era rates plus $56 billion in unemployment insurance extensions, $120 billion in payroll tax cuts, $40 billion in tax credits for lower-income families and students; and new incentives for business to buy capital goods next year. It mixes orthodox Republican policy with progressive stimulus into a stew that political observers have called noxious, pathetic, shrewd, irresponsible and shocking.

I'm somewhere between shrewd, irresponsible and shocking. If you're still working through your own emotions on the deal, here's a tip sheet summarizing the five most common reactions to the grand bargain.

1. The Ultimate Capitulation. Get ready for the liberal backlash. President Obama promised for years to raise taxes on the top two percent, and when he got to the negotiating table, he promptly ... caved in. These tax cuts for the rich represent a broken government that cannot act unless in the shadow of ever-lower taxes for the rich.

Tax cuts for the top two percent are not good stimulus, they're not cost-effective, and they're not even popular according to some national polls. So how was the White House bullied into accepting this turd sandwich even if it meant violating one of its fundamental promises?

2. A Deal, But a Flawed Deal. The conservative reaction to the compromise -- from both politicians and political wonks I've read-- has been admiring, surprised and resigned. Admiring, because they get their tax cuts without a bloody fight; surprised, because they get hundreds of billions of dollars in additional tax cuts that will be hard to resist; and resigned to the liberal ingredients in the deal, like 13 months of jobless benefits.

3. A Deficit Hawk's Worst Nightmare. It has been a year of deficit kvetching. Conservatives called for no new spending; the Tea Party called for rescinding the entire Obama budget; moderates called for higher taxes; and some even called for all three. In the last few weeks, we've seen a parade of deficit plans designed to bring our financial house into order. And now...this:

A two-year $900 billion plan to slash income taxes, payroll taxes, and corporate taxes to the bone while adding another year of 99-week unemployment benefits.

Many deficit hawks draw a distinction between the short term recovery (where we want lower taxes, higher spending, larger deficits) and the long term economy (where we want higher taxes, lower spending, smaller deficits). But even wearing those bifocals, it's mindboggling how quickly the national conversation turned from managing the deficit to slashing taxes to historically low levels without a credible plan to pay for it later.

4. A Better-Than-Expected Compromise. Here's a simple way to think about the deal: Is it good or bad for the economy in 2011? Actually don't ask yourself, ask the Congressional Budget Office. Of the six stimulus ideas analyzed by the CBO this summer, this compromise has four, including the two most effective: a year of unemployment insurance funding plus a payroll tax cut for employees that is concentrated in the middle- and upper-middle class.

There's more. The business tax deduction tells companies "the more stuff you buy, the lower taxes you pay." That's good. The refundable credit extensions will keep money in the hands of low- and middle-income families. That's good, too.

Of course it's unsavory that the White House had to accept this monstrous tax deal for the rich. But if that's the price you pay for a second stimulus, or the extension of stimulative policies, it's worth it.

5. A Great Punt! Democrats didn't have the votes to raise taxes on the rich -- period. The numbers haven't been there in the Senate for months. The only option for the White House was to work with Republicans on a short-term tax extension.

For a while, progressives worried that a short-term deal was all they would get. But the president came away with much more: 13 months of unemployment benefits (which Republicans would never have voted for alone, without offsets), a payroll tax cut (which liberals like Robert Reich have been pushing for two years), the White House's business tax deduction plan, and the extension of refundable tax credits (which many conservatives dislike because last year they helped almost 50 percent of taxpayers receive, rather than pay, income from the federal income tax code). In short, the Democrats smuggled an army of progressive and White House-backed stimulus ideas into a tax cut deal they might have had to make anyway.

Liberals accused the president of punting. Okay, then. This play was like being backed up on your own goal line on fourth down and punting it inside your opponent's ten-yard line. Touchdown? Nope. Perfect play? Not exactly. But given the circumstances, a damn good punt.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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