Dan Shaviro, a colleague at NYU, ends up being hopeful about the Obama-GOP deal. See "The deal on extending the tax cuts", Start Making Sense, Dec. 6, 2010 and "The tax cut deal: too soon to tell who really won?", Dec. 7, 2010. I think that is because Dan tends to credit Economics 101 with considerably more wisdom than I do (and place "efficiency", as defined by the free marketers, higher on the wish list for tax policy than I), so he thinks Social Security isn't on a sound footing and that benefits will need to be cut; thinks expensing for corporations is a reasonable way to spur growth; thinks there is some possibility that the 2012 replay of "Bush tax cuts, take 2" might play out in favor of Obama if he is "very clear that he planned to veto any extensions and let all the tax cuts expire UNLESS the Republicans made the deal he requires". I'll intersperse my comments with Dan's below.
1) extending all the expiring individual rate cuts for 2 years:
Dan says "we knew this was going to happen" so the only problem is that it comes up again in 2012 when Obama will "might face extra credibility problems".
I think we only knew this was going to happen because Obama didn't fight on this at all. Obama signalled at the beginning that he would cave, and he did not take to the bully pulpit at all. He conferenced with Republicans and cut out the Democratic leadership in reaching his "deal"--which is a Republican policy in everything but name.
2) extending unemployment insurance through 2011:
Dan says it is an important stimulus and "wasn't going to happen otherwise."
I agree on the stimulus. But the Dems should have brought unemployment extension up on a daily basis and forced the Republicans to vote against it. So the "wasn't going to happen otherwise" is part of the give-up before you start negotiating that got us into this mess.
3) reduce the Social Security payroll tax by 2% for one year:
Dan says "good stimulus" though "targeting could have been a lot better" and admits my point (made when payroll holidays were first brought up) that the payroll holiday feeds into the drive to decimate Social Security by hitting the Trust Fund. But Dan thinks the "concern" about long-term fiscal problems is real, and so is comfortable with addressing it "sooner" anyway.
I disagree. The concern about Social Security is being hyped in order to destroy Social Security as we know it. It is in line with the enmity towards unions, towards single payer health care, towards re-regulation of the banks, towards breaking apart big banks, and towards any other policy that would restore a vibrant middle class. By allowing a payroll holiday for everyone, the majority of the benefit goes to people who don't really need it, and too little benefit goes to those who do. Targeting is better than a tax cut purely for the rich, but that isn't saying much. Doing some stimulus in a means that pushes the GOP agenda to eviscerate Social Security forward is like tying one hand behind your back--a rather unwise way to enter a long-term battle for the economic future. Will we have the brutal mix of casino and winner-take-all capitalism that has driven most of this country's policies from Reagan on or will we have a tempered capitalism that ensures a broad-based growth and creates an economic system that works for everyone? The Republican's aims to let states go into bankruptcy and use that mechanism to destroy public employee unions says they are in this battle to destroy the New Deal if they can. We need to fight just as hard on the side of the middle class.
4) Estate tax cut by increasing the exemption from the 2001 level to $5 million (basically 500% of the 2001 amount) and lowering the top rate to a mere 35%.
Dan thinks this might actually be preferable "in efficiency terms" to the current law, which would have restored 2001 rates in 2011, if done in a "distribution and revenue neutral framework". And even though this isn't that, he doesn't think a more progressive estate tax "is long-term feasible anyway." So this is not "a terrible outcome in a realistic overall sense."
Here we part ways 100%. There is no such thing as a distribution and revenue neutral framework--that is a fiction of economics 101 that permits what we have seen, which is four decades of redistribution upwards. Further, distribution neutral is not desirable in an economy where the winners already take all--if we don't reverse the direction of distribution in this economy, we will end up in oligarchy (if we aren't there already). In that context, this was the single most viable opportunity for reinstating an appropriate estate tax, either by letting the Republican-passed law take hold (return to 2001 exemption and rates) or by passing a slightly modified but ideally more progressive version (higher exemption but progressively higher rates beginning at 45%). This is indeed "a terrible outcome in a realistic overall sense."
5) extensions of the EITC, tuition tax credit and expensing (as well as the R&D credit, not mentioned by Dan
Dan says that the EITC and tuition tax credit are okay because they may add progressivity and the expensing provision is okay as a short-term stimulus.
The EITC is okay. Tuition tax credits just subsidize the things colleges spend money on that they don't want students to have to feel they are paying for--like too high administrative salaries (across-the board, at private and public universities). We ought to fund higher education at public institutions, but with conditions, such as limiting the percentage of total budget spent on administration or on the revenue sports, etc. As for expensing, it is unclear how it can be stimulative in this context, when the reason companies aren't expanding is because they don't see a demand for the business. Most companies have the cash on hand and can borrow at a funding cost that is extraordinarily low. That isn't what is holding back investment. Odds are, the savings from expensing will just go to another round of higher manager salaries and big payouts to shareholders (who will also continue to benefit from an extraordinarily low dividend and capital gains rate under the deal).
Dan seems to think that Obama will be able to argue credibly that "this time I mean it" when it comes to the 2012 election and the Bush tax cuts are ready to expire once again. Fat chance. There's nothing so far to convince anyone--Obama caved before fighting on the public option and on taxes for the rich and on the estate tax and on capital gains and on carried interest and on and on. Obama in fact is now pushing his Democratic colleagues to support an agenda that will easily get 100% Republican support and maybe enough reluctant Democratic support to pass, rather than rallying them to fight so that he can veto, if need be, wrong-headed legislation. So he has proven that the Dems lose in the minority and they don't bother to fight when they are in the majority. No way his base will trust him to do it better next time around.
Meanwhile, the GOP is already blaring that there is no way that they'll give an inch on anything. They won't support the Build America Bond program, because they want states to declare bankruptcy as a means to destroy public employee unions. And they don't seem to care that they are destroying the American social contract between the wealthy and the rest of us at the same time--we are what we are because we have recognized the importance of a strong middle class that acts as a check on oligarchy. Yet the Republican party--and now too many Dems--are willing to throw it all away just to get elected one more time (maybe) in the future.
In my view, the American people are the losers here. The AMT patch primarily helps those with high incomes. Most of those who pay the AMT because of bracket creep are in the 250-500,000 income range--certainly not middle class. Only a few are in the 75-100,000 range. The extension of extremely favorable taxation of secondary market capital gains and dividend income is of benefit to the wealthy who own most of the financial assets. The extension of the tax rate cuts even below 250,000 already aids the wealthy--adding the tax rate cut at the top means that most of the rate cut goes to the very well off. This is a very good deal with corporate managers and owners, and rotten for ordinary Americans. It's the upside down world of George W. "the have-mores are my base" Bush.