The Compromise Tax Bill: Why Something Was Better Than Nothing

If a compromise by definition is a deal that pleases no one, then the $858 billion tax deal that cleared Congress Thursday night was a rousing success: Not many people feel like celebrating it.

Conservatives and liberals both argue that it doesn't go far enough -- in opposing direction, of course -- but those who voted for it on both sides of the aisle agreed that the alternative -- raising taxes for everyone -- was unpalatable while the U.S. struggles to extricate itself from the worst economic downturn since the Great Depression. In addition, millions of out-of-work Americans would have lost their unemployment benefits without the 13-month extension President Obama negotiated into the bill.

It's a far from perfect plan, and the issues in question should have been dealt with long before the deadline loomed -- but political maneuvering prevented that until now.

"They have known about this for seven or eight years," says Mark Robyn, staff economist at the conservative Tax Foundation, in an interview, who calls the bill a temporary solution and says that real tax reform is needed. "There was a lot more at stake if they couldn't pass something right now."

The law amended the estate tax, which conservatives would have preferred to abolish: It now exempts inheritances up to $5 million. Another issue conservatives have long championed is lowering the corporate tax rate: Republicans failed to get that tax rate lowered from its current level of 35%. As the Heritage Foundation recently noted, the U.S. is the only industrialized nation that has not lowered its corporate income tax rates over the past 20 years. Many businesses, however, file at the individual level, and will benefit from the lower tax rates that will apply there. On the plus side, the R&D tax credit was extended for two years. Tax breaks for ethanol producers, which some wanted to abolish, were also preserved.

How Much Bang for Our Billions of Bucks?

Business groups, though, are hailing the tax deal which President Obama is expected to sign today.

"These much-needed incentives will spur investment, economic growth and job creation," says Jay Timmons, executive vice president of the National Association of Manufacturers, in a press release. "We urge the President to sign the bill immediately so manufacturers and the broader business community can have some certainty moving forward."

As Paul Krugman of The New York Times and others have pointed out, the Congressional Budget Office estimates that extending the Bush tax cuts will trim unemployment by an extra 0.1 to 0.3 percentage points in 2011, and twice that in 2012. Without the deal, economists were predicting that U.S. GDP growth would be 2.8% next year, but many are now revising their estimates upward based on the premise that provisions such as middle-class tax cuts will help bolster the economy.

"We are talking about adding 1 point of GDP growth in 2011 and a reduction of unemployment from a half to a percentage point, and around a million more jobs," says Chad Stone, chief economist of the liberal Center on Budget and Policy Priorities, which supported the deal despite misgivings about some aspects of it. "This does make a big difference."

Stone added that even if those forecasts are accurate, the economic recovery would still be weak compared to what's needed to get the nation back on track, based on comparisons to previous recessions and their aftermaths.

Critics on the left, who argued that the tax deal benefits the rich at the expense of everyone else, still say the deal is bad news. Howard Gleckman of the Tax Policy Center writes on the organization's blog that the proposal will help grow the economy, albeit not by much. Groups such as MoveOn.Org have raised similar concerns.

"If you care about the bang for the buck -- and given our long-term fiscal mess, you should -- this new law is a colossal waste of money," Gleckman writes. "By my rough calculations, more than half -- at least $450 billion -- will do little or nothing to boost the economy in the short run. It won't increase demand for goods and services. It won't increase investment. And it certainly won't create many new jobs. It will, however, provide a fabulously generous tax windfall to those who need it least."

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Sam Das

Business expands on 3 principles and that is Quality, Price and Profit and every thing else is secondary.

December 19 2010 at 11:55 PM Report abuse +1 rate up rate down Reply
prettyeyes640

This is ridiculous! These rich business owners had the funds and the means all along to hire and help move the job market. When your RICH you can do that you know. It was the small business owners who's hands were tied and couldn't afford to hire extra help, or even stay open for business because the economy was so bad. The Republicans could have helped saved the job market during their term when Bush was in power, and they didn't! What does that tell us? They were then and still are today, puppets for Coporate CEO's! They scratch their backs, and the CEO's line their pockets. That has been the band of marriage for decades with this Politicians, ALL of them! Obama was supposed to end this lobbying affair in the White House, one of his many promises of course. This is why I voted for Hillary. Only experience can handle other experiences, especially bad experiences.

December 18 2010 at 7:19 PM Report abuse +1 rate up rate down Reply
GEORGE

You gotta fell bad for Obama he wanted to keep taxes low for the poor and middle class and go back to previous tax rates for the rich. All to reduce Americas deficit. Reoublicans decided to not go along with his plan and increase the debt we and our children have to pay. Republicans want to cut spending to reduce the deficit. BUT NOT THEIR RICH FRIENDS SPENDING.

December 18 2010 at 8:59 AM Report abuse rate up rate down Reply
2 replies to GEORGE's comment
bggdg

Reducing private sector spending, whether it be by rich citizens or poor citizens, does not decrease the federal budget deficit. If anything, it does just the opposite. By the way, Obama's party has enjoyed a majority in both the House and the Senate for nearly two years now. If he wanted to do as he said, what has stopped him?

December 18 2010 at 10:46 AM Report abuse -1 rate up rate down Reply
prettyeyes640

Exactly! And another thing, it never matters when a Politican losses an election, they have KISSED enough RICH AZZES to make them and their families rich and comfortable for the rest of their lives, and their future generation lives, all at the expense of starving, deprived Americans, who they have sworn to protect. Unfortunately they only protected the 2-3% population.

December 18 2010 at 7:31 PM Report abuse +1 rate up rate down Reply
CPG0326

In case any of you have been misinformed, the tax cut extensions were across all income levels which is what is fair. If you want to define a flat tax system and increased taxes on imports to make a more competitive environment for US businesses which will increase individual product pricing but balance out our embarrassing import/export imbalance with countries like China then happy to listen. But whining doesn't create solutions.

December 18 2010 at 2:32 AM Report abuse -1 rate up rate down Reply
1 reply to CPG0326's comment
prettyeyes640

We all can sit here all day long and blame the Republican parties and the Democratic parties, it's not going to do any good if WE, as Americans don't clean up the White House ourselves. Somewhere in the past we lost our voice and gave up our power as a people. We are the one's who are allowing our political leaders to do this to our country! We are the one's who keep electing the same leaders over, and over, and over again! There are Politicians who are still in the White House when you were in junior high or high school. They were not effective then, and they are even less effective now in these modern times. I'm discriminating against their age, I'm questioning their abilities as a leader for today's issues. Every election year they get up there with their highly prepared rhetoric speech and tell one lie after another on how they are going to change the way our government is running our country! Every term they say the SAME OLD THING, and every year Americans buy right into it! If they didn't/couldn't fight for the people in their last term, what makes us believe they are going to suddenly stand up and fight for us with a new term?
THINK PEOPLE, THINK!
Stop accepting their promises every election year and make them EARN their position every election term. If they are not effective on their job, we have a responsibility to fire them and bring in new leaders, with new ideals. If we don't do our job right out here in the regular world, wouldn't we get fired? We are the real BOSS here in this country! Wake up and stop fighting each other and make these Politicians do their job. Can't you all see how they ignore the voice of the people now. How they do what they want, when they want, and keep their pockets lined at the same time while millions and millions of Americans are suffering and hurting out here! I'm not saying, stop being a "Republican", or a "Democrat", I'm saying before we give these people so much power we need to put through a thorough interview ( like all companies do) before we hire them. Let's make those who are seeking another term answer to us on why they haven't done this, or that, and why haven't they kept ALL, or at least made a strong attempt, the promises they made to better help our country and the people they serve! We can't sit here and complain people if we don't start using the real power we have. Whatever these leaders are doing, right or wrong, mostly the latter, we have only ourselves to blame. WE HAVE TO CLEAN THE WHITE HOUSE and OUR ENTIRE GOVERNMENT UP BEFORE WE BECOME A THIRD WORLD POVERTY COUNTRY! We are already a laughing stock to the rest of the world.

December 18 2010 at 7:34 PM Report abuse +1 rate up rate down Reply
enpassant44

Why does anyone think giving tax cuts to the wealthy will create jobs? Companies don't hire unless they have to.

December 18 2010 at 1:32 AM Report abuse +3 rate up rate down Reply
1 reply to enpassant44's comment
bggdg

It's not just "tax cuts to the WEALTHY" that create jobs, but rather tax cuts IN GENERAL (inclusive of, but not limited too the wealthy, of course). Tax cuts do two things that create jobs: 1) They remove disincentives to work and invest. 2) They put more resources in the productive private sector, and less in the counterproductive public sector.

December 18 2010 at 10:42 AM Report abuse rate up rate down Reply
Juice

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December 17 2010 at 3:55 PM Report abuse rate up rate down Reply
frank1946

USA is getting left in the Dust by China and India, along with all the Tigers
along the Pacific Rim.................attempts to compete are dismissed as
welfare for the Rich, etc. High Paying Jobs will not come back with this type
of tax/spending being supported by the Federal Government !

December 17 2010 at 2:14 PM Report abuse +1 rate up rate down Reply
2 replies to frank1946's comment
excelsior6127

in the meantime,they kicked the can down the road. don't think the 2 year tax extention for the rich isn't going to be extended once again in 2012. the deficit will addressed by blaming our fiscal problems, not on the war and bush's trickle down economy, but on the increases in social security, medicare/medicaid costs. the economy can continue decline as long as the upper 1% can preserve where wealth.

December 17 2010 at 2:55 PM Report abuse +1 rate up rate down Reply
prettyeyes640

Why should they come back, OUR government has made it easy for them to have their cake along with all the ice cream they want. The companies that left the U.S to help support foreign countries, and improve their employment status are still eligiable for the "Tax Breaks", even though they are no longer based in the U.S, and aren't providing American jobs, because they are simply...an American company. Talk about getting over!

December 18 2010 at 7:46 PM Report abuse +2 rate up rate down Reply