The bad news for Democrats is that it is almost certain that the White House will not get its wish on higher taxes for the top percent. The emerging consensus is that the entire Bush tax cut law will be extended, for some period of time.
The good news for Democrats is that they can still use the tax cut vote as a vehicle for pushing 11th hour stimulus:
After the U.S. Senate defeated two attempts by Democrats to extend the Bush-era tax cuts for the middle class permanently, President Obama told Democratic leaders "he would be open to a temporary extension of the Bush-era tax cuts for the affluent, but he would demand concessions from the GOP," the Wall Street Journal reports.
The concessions he's seeking: "a year-long extension of unemployment insurance and tax cuts for middle-income and working poor Americans that were in the stimulus law but also expire at the end of this year. Those include the Making Work Pay tax cut of $400 for middle-income individuals and $800 for couples, a tuition tax credit, an expanded earned income and child credit for the working poor, and a payroll tax credit for new hires."
Politics aside, the Bush tax cut debate has turned into a deficit hawk's worst nightmare. Six months ago, it looked like the president might raise taxes on families making more than $250,000, thereby saving the Treasury about $700 billion in revenue. Today, we're talking about extending the entire behemoth and adding on with unemployment insurance and further tax cuts for business and families. Even if those additional measures are wise (I'm torn on extending MWP, but totally behind more UI), it will be difficult to defend this deal on the basis on medium-term budget sanity without more attention to future cuts and tax changes.
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