Why Barack Obama Compromised On Tax Cuts [View All]

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Why Barack Obama Compromised On Tax Cuts
Posted by Michael Scherer Monday, December 6, 2010 at 7:59 pm


Long before the midterm ballots had been counted, White House aides had begun to mull the coming agony of divided government. As the Obama team worked out its options, one priority kept coming to the top: However, the next two years shook out, they told themselves, Barack Obama needed to convince the great middle of the American electorate once again that he was fighting for them.

On Monday night, just in time for most nightly news casts, Barack Obama stood behind a podium to announce his first major gambit in this new quest, a costly compromise “framework” on tax cuts that gave Republicans a major prize, Democrats several minor prizes, and a chance for the president position himself as a man above the Washington fray, doing what needs to be done for the American people. “I'm not willing to let working families become collateral damage,” Obama said. “The American people didn't send us here to fight symbolic battles or win symbolic victories.”


Read more: http://swampland.blogs.time.com/2010/12/06/why-barack-obama-compromised-on-tax-cuts/#ixzz17UOU3Es0

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In exchange, Obama said he had secured an extension of unemployment benefits for 13 months and a number of tax cuts, for education expenses, families with children and the low income from the 2009 Recovery Act that were set to expire. One of those tax cuts, which had long been criticized by Republicans, the Making Work Pay Tax Credit, would be traded for a similarly generous 2 percent decrease in the payroll tax for workers. There was also a deal to extend certain business incentives.

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But at the White House, where there is much anxiety about the staggering performance of the economy, this is considered a victory. In crafting the compromise, Obama may be able to effectively able to sneak another stimulus bill through Congress, by capitalizing on the Republican habit of refusing to acknowledge the deficit impact of tax cuts.

Moody's economist Mark Zandi, who advises both political parties, estimates that every dollar of federal spending on unemployment benefits would give a $1.60 jolt to the economy. Every dollar spent on a payroll tax holiday would give a $1.24 jolt. And every dollar spent on extending the Bush tax cuts would result in a much smaller, 34 cent jolt to the economy, in part because much of that money is likely to be saved. “In the current environment, emergency unemployment insurance is much more efficacious that tax cuts for upper income groups,” said Zandi, in an email to TIME. “Given the fragility of the recovery, however, I would do both.”

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