HLike John Cole, Kevin Drum, and Ezra Klein, I actually think the deal Obama got isn't all that bad. (If you're looking for the best summary of the deal, go read Ezra.) I'm still trying to puzzle the deal out: Jonathan Cohn says Republicans were "flexible" for one reason:
They are willing to deal away a lot if they're getting tax cuts for the rich. President Clinton got Republicans to establish a Childrens' Health Insurance Program in 1997 in return for a capital gains tax cut. Now Obama got a fair amount of stimulus in return for upper-bracket tax cuts. Unfortunately, it tends to be terrible policy. But it's the party's core policy goal, and if you help them attain it they can be surprisingly reasonable.
And yet why did Republicans agree to restore the estate tax, albeit at a much lower rate than the pre-2010 rate? Recall that the estate tax disappeared this year, temporarily, as a result of a provision in the original Bush bill. It seemed likely to me that Republicans were going to dig in their heels and insist that what they call the death tax be eliminated permanently, unilaterally declaring this year to be the baseline. I guess dropping it from 45% to 35% for estates above $5 million is enough of a victory for them. It is a huge tax cut for very wealthy people, which sucks, but I'm used to Republicans demanding much more before they've concluded that they won.
Here a way they think they won, via Drudge:
Obama went along with a tax cut! Can you believe it? What a humiliation! Of course, the tiny minority of us who are paying attention know that Obama has been a tax cutter; we also know that reducing the payroll tax has been an idea a lot of liberal wonks have spoken of favorably. Don't tell the 'pubs, but we think of it as stimulus -- it puts more money in the pockets of ordinary workers, who'll spend a lot of it. It's not much stimulus, but it's more than we had reason to expect. Now, this particular cut goes exclusively to employees, as The Wall Street Journal explains:
The version of a payroll-tax holiday under discussion now would reduce the 6.2% Social Security tax levied on a worker's wages to 4.2%. A worker making $40,000 a year would save $800, and some economists say that could help stimulate demand at a time when it's remained relatively weak.
The employer's half of the tax -- also 6.2% -- wouldn't be affected under the White House proposal, and thus the cost of hiring new workers wouldn't be directly affected.
I'm a bit surprised at that -- I might have expected the GOP to insist that the cost be split, so all those potential employers (including the poor, suffering ones that are sitting on piles of cash but not hiring) would have lower costs per worker. But maybe Republicans really don't want businesses to have an increased incentive to hire -- can't have that while there's a Democrat in the White House!
I'm assuming Republicans will want the lower payroll tax rate to be extended past the one-year period it's slated to last. I suppose that would be good for workers -- although it will drain money from Social Security trust fund. Ah, but for Republicans, I'm sure that's a feature, not a bug.
Overall, I think Republicans think they won bigger than they did -- and maybe that's why the deal happened.
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