Tax Compromise Not Such a Bad Deal

I have been listening to all the furor over the compromise tax proposal reached by the President and the Republican leadership, and I think a lot of people are misinformed.

What did the Republicans want? They wanted to extend all the Bush tax cuts and make them permanent. They wanted to let all the Obama tax cuts lapse. They wanted to repeal the estate tax permanently, and they were reluctant to extend unemployment benefits beyond a few months and without finding spending cuts specifically intended to pay for them.

What did the Democrats want? They wanted to extend only the tax cuts for the middle class and only until the economy has recovered enough that a tax increase would put it into a tailspin. They wanted to continue the Obama tax cuts for at least another year in hopes the economy will recover enough that letting them lapse wouldn't send it into a tailspin. They wanted to extend unemployment benefits, including creating a "tier" to help the "99-ers" who have been unemployed for so long.

What did each side get?

Both sides got the extension of the Bush tax cuts for the bottom 98% of the populace.

The Republicans got the extension of the tax cuts for the top 2% of the populace. They got the lapse of the "Pay to Work" bonus for low-income people who have jobs. They got a reduction in the estate tax from 55% to 35% and an increase in the exemption to $5 million.

The Democrats got the extension of all the Obama tax cuts except "Pay to Work." They got the 2% reduction in the FICA deduction from people's paychecks, which will only partially make up for the loss of the "Pay to Work" tax credit for folks making under $20,000. They got the extension of the unemployment benefits for 13 months, so we don't have to fight over that for at least a year.

Frankly, that looks like a pretty good tradeoff to me. The Republicans got a $130 billion benefit for the super wealthy, while the Democrats got $770 million for the middle class and unemployed -- and part of that will be paide for by the extra revenue that will be coming in from the estate tax.

The only major drawback I see is that all this is going to be deficit spending. Part of me cringes at that thought. Part of me says, so what? The tax breaks for the middle class will keep this recovery chugging along, and the extra 2% in everyone's paycheck will stimulate the economy, as will the unemployment benefits. Getting the economy back on a steady footing is more important than worrying about the debt we're running up.

The people who scream loudest about the deficit and the debt are always talking about the percentage of GDP it represents. They think it would be terrible for the debt to be greater than our GDP, but my family has more debt than our household's income. What is im portant is that we're spending that extra debt on something that benefits us in the short term as well as the long term. Most of it, in other words, is the mortgage on our house.

I look at it this way. The government has income, in the form of taxes and fees it collects. What is happening right now, is that we've had some crises that have forced us to borrow more than we'd like. (We've also been living beyond our means in other ways, too. for the past decade.) Like a family that has faced a major illness or the loss of a home to fire, we can come back from that crisis once it's over. But it's not over yet.

The federal government doesn't have a "house" to mortgage, but it does have resources that could be sold to pay off the debt. While I don't want to see Yellowstone or the Arctic National Wildlife Reserve on the block, I feel confident that their value and the value of other land the federal government owns would cover what we owe. More important, I believe that in the long run the government will be able to pay down the debt we're running up.

But I don't believe that now is the time to tighten our belts. I hope the furious legislators will improve the deal rather than reject it entirely. We need the stimulus it represents.

And I think President Obama deserves some credit for getting the Republicans to bend as far as they did.