President Obama just announced that he's reached a tentative deal with congressional Republicans over how to extend the Bush tax cuts. It's not final; House Democrats don't seem to have signed off yet. But the people in Washington who watch these things closely all seem to think it's close to a done deal.
What's in the deal? As expected, the two sides agreed to extend all of the tax cuts, including those that would benefit only very wealthy people, for two years. Obama also won a 13-month extension of unemployment insurance and a payroll tax holiday; Republicans got a bigger tax cut on wealthy estates.
So is this a good deal? Uh, not exactly. Is it a better deal than expected? That depends on what you were expecting and when you expected it.
Here, quickly, are five reasons to like this deal:
1. By adding an extension of unemployment insurance (and a payroll tax holiday to extension of the Bush tax cuts, the deal amounts to a new stimulus—one larger than the Republicans would have supported otherwise. One senior administration official suggested in a briefing call that, given Republican demands, “most people thought it would be impossible” to get such an extension.
2. Purely on policy grounds, permanent extension of any tax cuts is a bad idea. The country can’t afford them. No, you don’t want to raise taxes when the economy is so weak. But you don’t want to deprive the government of revenue permanently when the long-term budget picture is so bleak.
3. Obama gets a chance to look serious and less obstructionist than the Republicans. Americans say they like that.
4. Obama gets to give people a tax break. Americans say they like that too.
5. Obama couldn’t win this fight now, given the lack of will among more conservative Democrats in Congress and his low political standing. This way, he lives to fight another day--hopefully, with a stronger economy and stronger polls to buoy him. Ezra Klein laid out the political calculus this morning. Obama seemed to suggest he was thinking along the same lines when, during his press conference, he vowed to make his case to the American people in 2012. Maybe the Great Explainer will prevail after all.
And here are five reasons to hate this deal:
1. Tax cuts that benefit only very wealthy people are a horrible way to stimulate the economy. They also do a lousy job of addressing human needs at a time of considerable suffering. Obama used to decry these cuts. In fact, once upon a time most people would have thought it impossible that Obama would support such an extension.
2. Yes, permanently extending the tax cuts are a bad idea. But it’s not as if temporarily extending them makes permanent extension less likely. As Paul Krugman wrote today, "if tax-cut blackmail works now, why shouldn’t it work again later?" This was arguably Obama's best and last chance to kill a tax cut that will, over the next decade, starve government of money necessary to run its most important programs.
3. Americans already think Obama is more serious and less obstructionist. Based on the election results, they don't seem to care.
4. Americans already got a tax cut from Obama. Based on the election results, they don't seem to have noticed..
5. Even with the extra stimulus, the economy will likely grow slowly. That means Obama could still be low on political capital in two years. Also, to win a fight like this Obama would have to show the sort of communications skills he hasn’t shown in the last few months. He has utterly failed to frame this issue in a way that helps the Democrats' cause.