The tax and economic compromise hammered out between the White House and congressional Republicans this week includes much not to like, but it’s probably the best deal anyone could have expected.
On the bright side, the agreement will apply to all Americans who pay income taxes — even the wealthy. It prevents millions of families from being crushed by the higher marginal rates that would have kicked in next month without an extension of the expiring Bush tax cuts. And it reduces Social Security payroll withholdings by roughly one-third for all of 2011 — again, for taxpayers at every income level.
Leaving more money in the hands of private-sector workers remains the most effective path to jump-starting economic growth, creating jobs and boosting federal revenues. A massive tax hike at this time — especially on "the rich" Americans who own businesses or have the capital to invest in them — would only prolong our current malaise.
Additionally, Nevadans will be relieved to know the tentative accord includes a two-year extension of the deduction that allows them to write off a portion of their state and local sales taxes. That deduction actually expired at the end of 2009, so the extension is retroactive for purchases made this year while covering those made in 2011, as well.
That said, there’s not much else in the deal to cheer about.
First, the extension of the Bush tax rates is temporary, lasting only two years. While that provides entrepreneurs and investors with a brief window of certainty, it’s hardly removes the specter of big tax increases in the near future. A permanent fix would have been far preferable.
Second, congressional Republicans agreed to drop their insistence that an extension of emergency unemployment benefits be paid for with cuts elsewhere in the budget. While politically a good move — who wants to be seen as heartless? — it undermines their constant calls for fiscal sanity.
Third, Mr. Obama and Congress agreed to keep alive tax credits available to lower- and middle-class wage earners even if they don’t make enough to have an income tax liability. It’s unfair enough that almost half of all Americans pay no federal income tax, but it’s even worse that so many of them now receive an annual check from those who do.
Fourth, the agreement allows the revival of the insidious death tax. Yes, the 35 percent rate is much lower than the 55 percent tax that would have taken effect without the deal, but it’s still a job killer because the levy zeroed out this year.
Finally, there’s all the new debt created by the pact — more than $700 billion. The bill is being sent to future generations.
The agreement effectively turns the 2012 election into a referrendum on tax relief. President Obama, who has enraged his far-left base and congressional Democrats by compromising with the GOP, going against his 2008 campaign promises to punish the wealthy, vows to resume his class-warfare agenda in two years.
Meanwhile, Senate Majority Leader Harry Reid of Nevada says unhappy Democrats "have to do some more work" on the details. Are Democrats really willing to blow this up?
One way or another, Washington will kick the can — again.