President Obama's Tax Cut Deal: The Right Deal for the Unemployed and Working Poor

It has become fashionable to attack President Obama for a perceived lack of leadership and resolve. These attacks have come from all directions. Undoubtedly the tax cut compromise brokered by the President will give new fodder to his implacable critics on the Right and the Left. The bottom line, however, is that President Obama succeeded in negotiating the best possible deal out there for the unemployed and those in working poverty, while adhering to his principles and deferring until the next presidential election cycle the debate between cutting taxes for the rich and reducing the deficit. 

First, here is the financial situation that the President faced:

  1. The program extending unemployment insurance benefits beyond 26 weeks for up to 99 weeks had expired on November 1. Two million people were going to lose their unemployment benefits by Christmas if no agreement was reached.
  2. The progressive tax cuts enacted under the President – expanding the earned income tax credit and the child tax credit, growing the college tuition tax credit, and the middle class make work pay tax cut – would have expired on January 1, and the average American’s taxes would have gone up $3,000.

Of course, the Right was faced with expiration of the tax cuts on the wealthiest 2% of Americans and reinstitution of the Estate Tax. Who was in a better position to hold out?

Second, here is the political situation that the President faced:

  1. A new, very conservative Republican majority takes control of the U.S. House of Representatives in January.
  2. Senate Republicans recently announced that they would block consideration of all other matters in the Senate until the tax cut extension issue was resolved.
  3. Influential liberal Democrats had recently introduced legislation that would have extended unemployment insurance benefits for three months only.

The deal reached by the President:

  1. Extends all Bush tax cuts, including the tax cut for the wealthiest 2%, for two years.
  2. Preserves all of the progressive tax cuts enacted under President Obama (with a temporary reduction in the payroll deduction replacing the make work pay credit).
  3. Makes slight concessions on the estate tax.
  4. Continues eligibility for extended unemployment insurance benefits, which expired on November 1, for another 13 months, with no requirement that the cost be offset with cuts to other domestic programs.

In short, the deal reached by the President ensures that 2 million unemployed Americans will not lose their unemployment insurance benefits during the holiday season, that millions more will not lose their benefits next year, and that all of the progressive tax cuts for the working poor enacted during the Obama Administration will continue. It ends, on the most favorable terms available, a stalemate that is hurting low-income Americans every day it continues. The President got a lot more than other progressives were willing to settle for, while bringing the pain to an end.

The two-year extension of the tax cuts means that the issue of driving up the deficit by continuing tax cuts for the rich will be debated during the next presidential cycle. President Obama made it clear in his statement announcing the tax compromise that he strenuously opposes continuation of tax cuts for the rich. The President reached a political compromise, but there was no compromise on principle.

It’s time to move on.

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