A Good Deal for Democrats on Tax Cuts

By Megan McArdle

With the wailing and gnashing of teeth from many progressives, you would think that Obama had cut a deal to eliminate taxes on the wealthy in exchange for freeze-drying Guatamalan orphans in order to use them as decorations on the Family Research Council's Christmas Tree.  Meanwhile, the conservatives I've seen are as proud of this deal as if they'd baked it from scratch.


I'm puzzled on both counts.  Let me get the personal stuff out of the way: I think this is a terrible deal.  I was rooting for gridlock to cause the tax cuts to expire entirely, which would probably have a moderately negative impact on the economy, but would at least somewhat forestall a devastating fiscal crisis down the road.  If it was politically necessary to do tax cuts, I wanted them to be as small as possible, not $900 billion over two years.

To be sure, this is a better deal, from my perspective, than it might have been.  All the tax cut extensions are temporary, rather than permanent.  We get a temporary extension in unemployment benefits, which I favor, given the lousy jobs picture.  Some of the tax cuts, especially the temporary cut in the payroll tax, might even be stimulative.  Nonetheless, I would much rather they had expired entirely than that we re-fight this battle in two years, when most of the parties are up for re-election.  We may get that fiscal crisis even sooner than I thought.

But from the point of view of Democrats, this actually seems like a relatively decent deal.  Look at what's on the table:

Tax Deal Breakdown.png

I've color coded the priorities based on who I hear pushing various proposals.  Looking at them this way, it looks like the Democratic proposals got more money than the GOP proposals, even if we leave the "middle class tax cuts" out of it.

So why are progressives so enraged?  I'm not seeing a lot of complaints about austerity; rather, they simply seem to be mad that the Democrats were not able to thwart the GOP entirely.  As Clive Crook says, "But is it really good politics for the party to keep telling the electorate that raising taxes on the rich is the one thing, in the end, it stands for? That nothing else comes close in the party's list of priorities? Because this is the message that comes across."

Clive, of course, is more sanguine about this deal than I am--more confident that tax reform is coming which will eventually undo it.  I am not.  And I would be sympathetic to progressives if they were complaining about the cost of this thing.  But they're not--they're complaining about the $150 billion we're spending on Republican priorities, and saying nothing about the much larger sum we're spending on a Democratic agenda.  

Both sides, of course, are exposing themselves as the rank hypocrites they are on fiscal priorities.  To say I despair for the financial future of our government is too weak.  




This article available online at:

http://www.theatlantic.com/business/archive/2010/12/a-good-deal-for-democrats-on-tax-cuts/67636/