Tax deal not perfect, but necessary
The tax-cut deal between Senate Republicans and President Barack Obama is getting beat up from a lot of directions, but as unsavory as it may be in some respects, it is a pragmatic recognition that governance is often achieved through compromise.
And we can be pretty sure this deal is a compromise because no one likes it very much.
Some on the right say Republicans should have rejected the deal because they will have more leverage when the GOP takes a dominating House majority in January. But even then, there would still be a need for compromise.
Many on the left are revolted at the idea that the deal continues Bush-era tax breaks for everyone, and they continually employ the rubbish rhetoric that it’s a tax break for “millionaires and billionaires.”
Another way of phrasing it is that the compromise avoids levying tax increases on potential job creators who earn more than $250,000 a year.
The bottom line is that it’s not perfect, but something had to be done.
Our view is that any tax increases are unconscionable as the economy struggles toward recovery. However, it must be stressed that the larger issues of curbing government spending and attacking the country’s massive debt problem still lie ahead.
In addition to extending the Bush tax cuts of 2001, the compromise will temporarily cut Social Security payroll taxes for workers and renew jobless benefits for millions of people who were laid off more than six months ago. Those elements can be viewed as forms of economic stimulus, but they effectively weaken the government’s ability to wage war on deficits.
The biggest weakness in the bill is that the tax-cut extension is set to expire at the end of 2012. This “temporary” feature is unnecessary. Don’t set an artificial date for raising taxes later. Just make the current tax rates effective until such time as Congress wants to raise them. That is more honest, because current lawmakers cannot bind future Congresses from taking necessary actions anyway.
The main effect of the sunset provision is that it sets the country up for a re-run of the current political circus, and it denies the full-throttled potential for supply-side economic growth. As long as investors consider tax policy unpredictable, they are less likely to risk their money — thus potentially limiting job creation and productivity.
Economic growth, along with spending controls and possibly future tax sacrifices, are needed the most to address the country’s overwhelming debt problem. Kicking the problem into the future is really an inter-generational travesty, a truth that is not recognized often enough.