The Cato Institute’s Daniel J. Mitchell pretty much summed up my initial take on Le Grande Compromise between Obama and the Republicans on tax rates and unemployment benefits:
Compared to ideal policy, the deal announced last night between congressional Republicans and President Obama is terrible.
Compared to what I expected to happen, the deal announced last night is pretty good.
Point of order – there currently is no guarantee that Nancy Pelosi and Harry Reid, who weren’t exactly involved in the negotiations, are going to let this pass. I believe the applicable term when (I don’t believe it’s a matter of “if) this falls apart and all of the Clinton tax rates return full-force will be “poison pill”. Teh Won will bite his lower lip and whimper out, “I never tried so hard for anything as a middle-class tax cut” (if that sounds familiar, it should – that was what the last Democrat President said).
Even if this is a genuine and doable compromise, it’s essentially a punt into 2012 for everything except the reinstated death tax (at 35% with the first $3.5 million exempt for 2 years, compared to the previously-imminent (and now merely delayed until after 2012) 41%/$1 million exempt to 55%-beyond-$3 million), another 13 months of extended unemployment benefits (it’s still at the 99-week limit instead of 26 weeks), and the 1-year 16% reduction in the FICA tax (a reduction of the employee portion from 6.2% to 4.2%, in exchange for allowing the Make Work Pay tax credit). For the sake of argument, let’s look at the three:
- The Death Tax returns - The number one killer of family businesses is back. Let me put it this way – that money was already taxed once (or in the case of unrealized capital gains, will be taxed when said gain is realized) – the government has no right to a second taxation that is at a higher marginal rate than the first taxation just because one died.
- Extending unemployment benefits - Did the POR (Pelosi-Obama-Reid) Economy put you out of work? No problem – your 2011 can be as work-free as 2010 was. We’ll just borrow from the Red Chinese so you don’t have to worry about getting a job until 2012.
- The 1-year FICA tax reduction - This is actually better than the old Subsidize Low-Paying Jobs welfare plan. If you work, you’ll get 2% more on your paycheck. So what if SocSecurity runs a cash deficit again? It was going to be in the red anyway (seriously, this has a less-than-6-month effect on the SocSecurity fund-exhaustion dates).
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The Death Tax: No one should care. It’s near irrelevant. Especially now. So gramps dies and $5 million is left untouched while the other assets, the ones that weren’t buried away and/or sheltered, get hit with a 35% tax rate. 99% of the public shouldn’t care.
Nothing is more “Republican” than middle class Republicans fighting tooth and nail so that rich people can keep their often avoided income tax rate while they tell the 2 million Americans who lost their UI benefits to get a fucking job.
FICA: The 1 year payroll tax cut (SS revenue cut) is gonna be filled by general revenues. This was a mistake. They should have just rebated (if they did anything at all) from general revenue. This just gives the Republicans more of an excuse to claim that SS benefits should be cut to resolve future SS benefit shortfalls instead of the identifying the real culprit which is excessive, regressive top end tax cuts which have been hijacking surpluses for decades.